Inflation in Canada increased to 1.9% in January, as higher energy prices contributed to overall inflation, despite the offsetting effects of lower prices on GST-free goods.
January marked the first full month of the federal government’s temporary GST holiday, which reduced the cost of products typically subject to the tax. This included restaurant meals, alcoholic beverages purchased in stores, as well as toys, select games, and hobby supplies.
Energy prices saw a notable increase, rising 5.3% on a yearly basis in January—significantly higher than the previous month. Gas prices, in particular, jumped 8.6% compared to the same period last year, with the sharpest rise occurring in Manitoba due to the reintroduction of a provincial fuel tax at a lower rate. When excluding gas, the inflation rate stood at 1.7%.
Food inflation showed a slight decline compared to last year, marking the first annual drop since May 2017. The decrease was driven by lower prices for food purchased at restaurants. While the GST holiday provided temporary relief on food, alcohol, and clothing, the impact was overshadowed by rising energy costs, keeping inflation pressures elevated.
Core inflation continues to reflect underlying price pressures, with energy fluctuations likely to influence future inflation trends. Despite this, stronger inflation alongside retailer discounts and increased economic activity in the fourth quarter may support a decision to maintain interest rates at the upcoming policy meeting.
