Canada’s annual inflation rate eased to 1.8% in February 2026, down from 2.3% in January, marking the first dip below the Bank of Canada’s 2% target since July 2025 (Statistics Canada, 2026). The decrease was primarily driven by what economists call a “base effect.” In February 2025, the end of a temporary GST/HST tax holiday had caused a one-time price spike, which has now rolled out of the year-over-year calculation.
Food prices played a major role in the slowdown. Restaurant meal inflation fell sharply to 7.8% in February compared to 12.3% in January as the tax-related price surge faded. Grocery price growth also moderated to 4.1% from 4.8%, largely due to easing costs for fresh and frozen beef (Statistics Canada, 2026). Energy and service prices contributed to the decline as well. Natural gas prices plunged 17.1% year-over-year, while cellular service costs rose just 1.5%, down from 4.9% in January.
Core inflation measures, which help the Bank of Canada gauge underlying price pressures, also eased. Both CPI-trim and CPI-median fell to 2.3% (Bank of Canada, 2026). This comes amid a cooling economy, with Canada losing 84,000 jobs in February and unemployment rising to 6.7% (Statistics Canada, 2026). The Bank of Canada’s key policy rate remains at 2.25%, with its next decision scheduled for March 18.
Looking ahead, economists caution this dip may be temporary. The recent outbreak of war in the Middle East is expected to drive gasoline prices up by as much as 15% in March, which could push headline inflation back toward 3%. Still, the Bank of Canada anticipates inflation will hover near its 2% target through 2026, as trade-related cost pressures are offset by excess supply in the economy (Bank of Canada, 2026).
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