Canada's Consumer Price Index (CPI) rose by 1.8% year-over-year in February 2026, a notable deceleration from the 2.3% increase recorded in January. This slowdown, largely attributed to base-year effects, points to easing price pressures in the economy. The primary factor behind the lower headline figure was the comparison to price increases recorded in February 2025, when a temporary GST/HST tax holiday ended mid-month.
Key components exerted significant downward pressure on the annual inflation rate. Gasoline prices fell by 14.2% year-on-year, while natural gas prices dropped by 17.1%. Additional downward contributions came from homeowners' replacement cost (-2.1%), other owned accommodation expenses (-2.6%), and travel tours (-3.1%). On a monthly basis, the CPI increased by 0.5%, but the seasonally adjusted monthly increase was a mild 0.1%.
The annual slowdown is closely linked to the expiration of the GST/HST tax break on February 15, 2025, which had temporarily lowered taxes on approximately 10% of the CPI basket. When the tax holiday ended, prices for affected products increased, creating a high base for comparison in February 2026.
Despite the overall cooling, certain areas saw persistent price growth. Grocery prices rose by 4.1% in February, down from 4.8% in January. Notably, prices for fresh or frozen beef increased by 13.9%, a moderation from the 18.8% rise in January. Since February 2021, grocery prices have surged by 30.1%, highlighting long-term inflationary pressures for consumers.
Other factors contributing to lower inflation included a slowdown in wireless service prices, which saw a 1.5% annual increase in February compared to 4.9% in January, driven by a 3.3% month-over-month decline. Meanwhile, gasoline prices continued to fall annually, though the pace of decline narrowed to 14.2% from 16.7% in January, influenced by a 3.6% monthly increase linked to higher crude oil prices.
Concurrently, a report from RBC Economics warns of persistent supply-side risks threatening price stability in 2025. While core inflation measures like CPI-trim (3.2%) and CPI-median (3.6%) show a downward trajectory, aligning with the Bank of Canada's projections, the financial institution highlights vulnerabilities. Global supply chain fragilities, geopolitical tensions, and domestic capacity constraints in housing and energy could complicate the central bank's policy path.
Nathan Janzen, Assistant Chief Economist at RBC, noted that while demand-side inflation is cooling, the economy remains susceptible to cost-push inflation from supply disruptions. This creates a complex scenario for policymakers, likely leading the Bank of Canada to maintain a cautious, data-dependent approach and potentially delay rate cuts further into 2025 to ensure inflationary momentum is fully broken.
