Canada’s annual inflation rate cooled to 1.8% in February 2026, down from 2.3% in January, coming in just below the expected 1.9%, Statistics Canada reported. While the slowdown offers a reprieve for consumers, the full impact of escalating Middle East conflict on gas prices is yet to hit, with next month’s data expected to reflect sharper increases.
The deceleration was driven largely by a base-year effect from the end of a GST/HST tax break in February 2025, which had temporarily inflated prices last year. Key categories like food purchased from restaurants saw notable slowdowns, though prices still climbed 7.8% year-over-year. Alcoholic beverages and toys also felt the downward pressure from the tax break’s expiry, with price growth easing to 5.6% and 5.4%, respectively.
Grocery prices, a persistent pain point for households, rose 4.1% in February, a moderation from January’s 4.8%. Beef products led the slowdown, with fresh or frozen beef prices increasing by 13.9% compared to 18.8% the prior month. Despite the easing, grocery costs have surged 30.1% since February 2021, underscoring the cumulative burden on Canadian budgets.
Transportation costs provided some relief, declining 0.8% year-over-year, with gasoline prices tumbling 14.2% and natural gas dropping 17.1%. However, crude oil price hikes tied to the Middle East war, which broke out on the last day of February, signal a likely reversal in March’s data. Shelter costs also grew at a muted 1.5%, with declines in homeowners’ replacement costs and other accommodation expenses tempering the index.
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Cellular service prices offered a small bright spot, rising just 1.5% compared to 4.9% in January, thanks to a 3.3% month-over-month drop as providers rolled out lower-priced plans. On a seasonally adjusted basis, the overall Consumer Price Index edged up 0.1% month-over-month, reflecting subdued momentum.
Core CPI trim, a measure of underlying inflation, remained stickier at 2.3% year-over-year, hinting at persistent pressures beneath the headline figure. With geopolitical tensions poised to drive energy costs higher, the Bank of Canada faces a delicate balancing act as it weighs inflationary risks against a softening economic backdrop, evidenced by a 6.7% unemployment rate in February and a contraction in GDP for Q4 2025.
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