Economists surveyed by Reuters expected Canada’s annual inflation rate to hold steady at 2.2% in December 2025 when Statistics Canada released the data on Jan. 19, 2026. An expected 8% drop in gasoline prices was forecast to offset food prices pushed higher by comparisons with the 2024 GST/HST tax holiday.
A noisy number to read
Forecasters warned that December’s consumer price index would be unusually hard to read. The federal government’s two-month tax holiday, which removed the GST from some groceries, restaurant meals, alcohol and common gifts starting in mid-December 2024, temporarily pushed prices down a year earlier — and that distortion was about to fall out of the annual comparison, mechanically pushing year-over-year inflation up.
A Reuters survey of economists conducted through LSEG Data & Analytics pointed to an unchanged 2.2% annual rate. RBC was among the banks expecting no change, with assistant chief economist Nathan Janzen estimating an 8% monthly drop in gasoline prices would counterbalance sticky food costs. BMO’s Benjamin Reitzes was slightly higher, expecting 2.3% despite the heavy decline at the pumps.
Food is where the pressure sits
Both banks expected food inflation to accelerate. RBC forecast overall food price growth would top 5% in December, up from 4.2% in November, as the whipsaw from GST-free restaurant meals a year earlier pushed the index higher. “From a year-ago level we are expecting to see a notable acceleration in grocery prices,” Reitzes wrote, adding that recent producer price trends suggested food inflation would keep accelerating in the months ahead.
Janzen warned the distortions would linger: the unwinding of the tax holiday would affect annual figures through March, and the removal of the consumer carbon price in April 2025 would push the headline rate higher in April 2026.
Not expected to move the Bank of Canada
Whatever the number, economists did not expect it to change the Bank of Canada’s course at its first rate decision of 2026 on Jan. 28. Reitzes called a policy shift “unlikely.” Governor Tiff Macklem had said after the bank held its benchmark rate at 2.25% in December that policy was at about the right level to support the economy while keeping inflation in check. Janzen saw the bank on hold until 2027, when RBC expects rates to start rising again.
Monday also brought the bank’s quarterly business outlook and consumer expectations surveys, which Janzen expected to show an economy stabilizing under the pressure of U.S. tariffs, with muted demand, cautious pricing and restrained hiring plans.
What the data actually showed
The release came in hotter than the consensus. Statistics Canada reported on Jan. 19 that inflation rose to 2.4% in December, as restaurant meal prices jumped 8.5% year over year — the largest single driver — and grocery prices rose 5.0%, including coffee up more than 30%. Gasoline fell 13.8% from a year earlier and, without the end of the consumer carbon price, headline inflation would have been higher still. The bank’s core measures, however, eased on the month, and CIBC’s economists said the report was unlikely to change the Bank of Canada’s plans — a mixed result that largely confirmed the forecasters’ central warning: December’s number said more about last year’s tax break than about where prices are heading now.
