| Consensus | Consensus Range | Actual | Previous | |
| CPI - M/M | 0.2% | 0.1% to 0.3% | 0.0% | -0.2% |
| CPI - Y/Y | 2.4% | 2.3% to 2.6% | 2.3% | 2.4% |
| Core CPI - M/M | -0.2% | 0.0% | ||
| Core CPI - Y/Y | 2.4% | 2.5% |
Highlights
Inflation was lower than expected in January, when prices were flat on the month, for a 12-month increase of 2.3 percent, down from 2.4 percent in December. Forecasters in an Econoday survey had expected a 0.2 percent monthly gain that would have recovered the 0.2 percent decline in December. The year-over-year consensus was at 2.4 percent.
Excluding food and energy, prices contracted 0.2 percent on the month and were up 2.4 percent year-over-year, down from 2.5 percent in December.
Today's report is in line with the Bank of Canada's projection of a 2.4 percent inflation rate in January.
Temporary indirect tax changes from mid-December 2024 to mid-February 2025, affecting 10 percent of the CPI basket, are expected to drive 12-month inflation volatility at the beginning of 2026. The central bank expects the inflation rate to decline to 1.8 percent in February and 1.7 percent in March, owing to lower energy prices, slower growth in shelter costs in addition to the end of the base-year effect from last winter's GST/HST holiday. Prices for restaurant meals, alcoholic beverages, toys and children's clothing are among the most affected by the temporary tax measures. The inflation rate is expected to go back just above 2.0 percent in April.
The all-item CPI excluding the effect of indirect taxes increased 2.1 percent in January, down from 2.5 percent in December and 2.8 percent in November.
Although still above the 2 percent target, all three BoC's preferred core measures of inflation, which exclude indirect tax effects, showed sign of easing in January. The CPI-median came down to 2.5 percent from 2.6 percent, CPI-trim to 2.4 percent from 2.7 percent, and CPI-common to 2.7 percent from 2.8 percent.
A 16.7 percent drop in gasoline prices was the largest downward contributor to the 12-month CPI. Prices excluding gasoline were up 3.0 percent from January 2025. Overall energy prices fell 10.9 percent year-over-year, without which inflation would have been 3.2 percent. Food prices, by contrast, were up 7.3 percent. A 12.3 percent gain in food purchased from restaurants was the main upward contributor to the 12-month CPI.
On a monthly basis, household appliances, up 6.2 percent, were that main upward contributor, while air transportation, down 23.4 percent, was the main downward contributor.
Except for declines of 1.4 percent in transportation and 0.1 percent in shelter, all main categories increased on the month, including a 0.5 percent gain in food prices. On a 12-month basis, transportation, down 1.7 percent, was the only one of the major categories to record lower prices.
Goods prices rose 0.8 percent on the month and 0.9 percent from a year earlier. Services declined 0.6 percent from December, for a 12-month increase of 3.4 percent.
The seasonally adjusted monthly CPI edged up 0.1 percent in January after 0.3 percent in December, as did the core index excluding food and energy.
Looking ahead, as the Canada-U.S.-Mexico Agreement is set for review, trade tensions remain both an upside risk, through higher import prices, and a downside risk, through weaker growth, to the inflation outlook.
Market Consensus Before Announcement
CPI expected up 0.2 percent on month in January and 2.4 percent on year after decreasing 0.2 percent on month and rising 2.4 percent on year in December. Grocery prices and distortions from last year’s tax holiday expected to bias the numbers higher.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.