Canada’s inflation rate fell to 1.8% year over year in February, Statistics Canada reported Monday, a notable drop from the 2.3% recorded in January and below the Bank of Canada’s 2% target. The reading came in slightly under analyst expectations and marks a continued easing of price pressures heading into spring, though higher oil prices as a result of disruptions from the war in Iran could change this picture in the months ahead if those disruptions are sustained.
On a seasonally adjusted monthly basis, the Consumer Price Index rose just 0.1% in February, reflecting broad stabilization in consumer prices across most categories.
The slowdown in the all-items CPI was largely driven by a base-year effect: in February 2025, prices rose sharply on a monthly basis when the federal GST/HST tax break ended partway through the month. That spike has now fallen out of the 12-month calculation, pulling the annual headline figure lower. The most significant index affected by this base-year effect was food purchased from restaurants, along with smaller contributions from alcoholic beverages and toys.
Downward pressure in February also came from gasoline prices, which fell 14.2% year over year, along with natural gas, which dropped 17.1%, and homeowners’ replacement costs, which declined 2.1%.
Food purchased from stores remained a persistent pressure point, rising 4.1% year over year in February, though that was a deceleration from the 4.8% increase recorded in January.
Excluding the effect of indirect taxes, the CPI rose 1.9% year over year in February, a measure that has been decelerating each month since December 2025.
Provincially, prices rose at a slower pace in all provinces compared with January. Provinces with harmonized sales tax, including Ontario and those in Atlantic Canada, were more affected by the base-year effect from last year’s tax break, while provinces with separate provincial and federal sales taxes saw comparatively smaller shifts.
Statistics Canada noted that March 2026 will be the final month affected by base-year distortions tied to the GST/HST break, meaning headline inflation figures in the months ahead should more cleanly reflect underlying price trends.
The Bank of Canada, which meets next week, will have to weigh this softer inflation print against mounting uncertainty from U.S. tariff threats and a cooling labour market as it considers its next move on interest rates.
That Canada has brought inflation below the Bank of Canada’s target at a moment of acute external pressure, with U.S. tariffs threatening supply chains, export markets, and business confidence, is a testament to the underlying resilience of the Canadian economy and the credibility of its independent institutions. A perception of credible federal leadership, combined with the Bank of Canada’s disciplined stewardship of monetary policy, insulated from political interference, has helped anchor expectations during a period of genuine uncertainty. We are seeing that strong, independent institutions are not mere bureaucratic abstractions, but are essential when external pressures mount. That institutional inheritance is worth defending, and worth building on.
Spencer Fernando
I am 100% Independent. I don't take government media subsidies, and I never will. My work is funded entirely by readers — no grants, no strings, no obligations to anyone but you.
If you find value in my independent perspective, consider making a donation:
If you want to support my work on a monthly basis and access all of my long-form writing, you can subscribe to my Patreon for $20/month or $216/year.