Canada’s 

inflation rate

slowed to 1.8 per cent in February, down from 2.3 per cent in January, as the end of the GST/HST holiday a year earlier caused headline inflation to decelerate.

In its latest consumer price index (CPI) report released Monday, Statistics Canada said the temporary sales tax exemption, which ended on Feb. 15, 2025, “resulted in monthly price increases for affected products in that month, which put downward pressure on year-over-year price change in February 2026.”

Economists had expected an inflation rate of 1.9 per cent.

Even with deceleration from the base-year effect, the price of food purchased from restaurants rose 7.8 per cent year-over-year, while alcoholic beverages served in licensed establishments climbed 6.8 per cent and toys, games and hobby supplies (excluding video games) were up 5.4 per cent.

Prices for food purchased from stores rose 4.1 per cent compared to a year earlier, down from 4.8 per cent in January. The slowdown was broad-based but “modest” and driven by a deceleration in prices for fresh or frozen beef, which rose 13.9 per cent in February after increasing 18.8 per cent in January.

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Statistics Canada noted that while growth slowed last month, grocery prices have risen more than 30 per cent over the last five years.

Excluding the effect of the GST/HST holiday, the CPI rose 1.9 per cent in February compared to a year earlier.

The agency also said year-over-year declines in a range of indexes contributed to downward pressure last month, including homeowners’ replacement cost, other owned accommodation expenses and travel tours.

Claire Fan, senior economist at Royal Bank of Canada, said in a note that CPI-median and CPI-trim offer “clearer reads” because they exclude volatile monthly swings and indirect tax changes. Both measures rose 2.3 per cent in February and have cooled off in recent months after reaching 3.1 per cent in September.

“While the moderation in those core CPI measures is welcome as it suggests easing demand-driven inflation pressure, Canadian households continue to face supply-side headwinds, particularly in grocery items like beef and coffee where production disruptions from adverse weather take time to resolve,” Fan said.

The removal of the consumer carbon tax in April 2025 continued to affect

Gasoline prices

, which fell 14.2 per cent in February. The smaller year-over-year decline from January’s 16.7 per cent was due to the price of crude oil climbing in the lead-up to the war in Iran and supply disruptions in some producer countries.

Leslie Preston, managing director and senior economist at Toronto-Dominion Bank, said in a note that Canada’s cooling inflation is “backward looking” now that gas prices have spiked in the wake of the U.S.-Israel war with Iran.

“We expect higher energy costs will lift headline inflation close to three per cent in the months ahead, but the effect on the Bank of Canada’s core measures should be more modest,” Preston said in a note. “Core inflation is expected to stay reasonably close to the two per cent target on a year-on-year basis this year.”

The latest data comes two days before the Bank of Canada releases its next interest rate decision. The central bank maintained its benchmark interest rate at 2.25 per cent for the third time in a row at its last announcement on Jan. 28, and economists expect another pause on March 18.

“We don’t expect the Bank of Canada to rush to respond, until gaining more clarity on the scope, duration, and growth-inflation trade-off of the current shock,” said Fan.

• Email: jswitzer@postmedia.com