Canada’s inflationary pressures remained modest in January 2025, with the Consumer Price Index (CPI) rising by 1.9% year-over-year, a slight acceleration from the 1.8% increase recorded in December. The uptick, however, was primarily attributed to rising energy prices, offset in part by reductions in food costs, especially in sectors impacted by the GST/HST tax break introduced late last year.
The monthly change in the CPI was a modest 0.1% for January, following a 0.4% decline in December. The energy sector played a dominant role in driving the inflation figures, as gasoline and natural gas prices surged. However, the overall CPI increase was muted due to sustained downward pressure on certain goods and services, particularly food items, which saw a decline.
Energy prices in Canada saw a significant increase of 5.3% compared to January 2024. This increase was notably higher than the 1.0% rise observed in December. The main contributors were gasoline and natural gas, with gasoline prices climbing 8.6% year-over-year, reflecting a sharp spike in several regions, particularly Manitoba, where the re-introduction of a provincial gas tax saw prices soar by nearly 26%.
Natural gas prices also showed upward momentum, rising by 4.8% from a year earlier. Every month, natural gas prices surged by 6.0%, with British Columbia experiencing the largest increase of 12.8%. These increases in energy costs played a significant role in pushing up the overall CPI for January.
A surprising highlight in the January data was the first year-over-year drop in food prices since May 2017. The food component of the CPI fell by 0.6%, primarily driven by a steep 5.1% decline in prices for food purchased from restaurants. This marked the largest such drop in recent history, reflecting shifting consumer habits amid economic pressures. Meanwhile, grocery store prices saw a more modest increase, but the impact of the tax relief for many items continued to influence costs.
Despite the overall dip in food prices, other categories within the CPI, such as alcoholic beverages, toys, and games, also saw price reductions. This was partly due to the continued effect of the GST/HST break, which impacted nearly 10% of the CPI basket. This measure continued to exert downward pressure on selected consumer goods.
The purchase of passenger vehicles also contributed to inflation, with the index for new vehicles rising by 2.3% year-over-year. This was a notable rebound compared to the relatively modest 0.9% increase seen in December. Meanwhile, used vehicle prices continued their decline, though at a slower pace, dropping 3.4% compared to a 4.1% decrease in December. This marks the 13th consecutive month of price reductions for used cars, a trend that has been ongoing since late 2023.
Regional data revealed that inflation varied across the country. In Manitoba and Saskatchewan, prices increased more rapidly, driven by energy costs, with the year-over-year CPI rising 1.8% in both provinces excluding energy. Other provinces, including those with lower energy price impacts, saw more moderate increases or even price stability.
While Canada’s overall inflation picture remains relatively calm, regional disparities highlight the uneven nature of economic pressures, particularly in provinces with heavy reliance on energy sectors. For instance, Alberta, traditionally tied to the energy market, also saw sharp rises in energy prices, whereas provinces less reliant on these sectors had more modest CPI increases.
The ongoing discussions around U.S. tariffs remain a concern for Canadian inflation. As tariffs on goods traded between the U.S. and Canada could create upward pressure on domestic prices, the full impact on Canadian inflation has yet to be fully realized. Statistics Canada noted that the effects of tariffs would be embedded in the CPI data, without the need for special adjustments. The agency will continue monitoring developments in international trade and their potential effects on inflation.
As the Bank of Canada watches inflation trends closely, Canadians can expect to see ongoing adjustments in their household budgets, influenced by both domestic policies and broader global economic shifts.