Desjardins Says Rate Cuts Could Be Back On the Table After January's CPI

09:41 AM EST, 02/17/2026 (MT Newswires) -- Canadian central bankers have been "too concerned about upside risks to inflation", Desjardins reiterated Tuesday, after the release of related data for January.

"It's clear now that the Governing Council should be squarely focused on supporting the economy. Should upcoming activity readings falter, rate cuts will be back on the table," said Royce Mendes.

Mendes noted market participants are now pricing in almost a 40% chance of a rate cut by mid-year. "We tend to agree with that pricing, particularly given the possibility of a very contentious CUSMA review process. While we're not ready to include any further rate reductions in our base case forecast just yet, it wouldn't take much to force a change."

On today's data, Mendes noted the Canadian consumer price index was flat over the month, leaving the annual rate tracking 2.3%, slightly below analyst expectations. Excluding food and energy, prices rose just 0.1% month over month. As a result, the 12-month rate of that core inflation measure decelerated a tick to 2.4%, he noted.

Mendes said the temporary GST/HST break that began ub December 2024 has pushed headline and excluding food/energy year-over-year inflation rates higher, but added that effect should largely disappear in the next release. In addition to impacting the 12-month rates of inflation, the GST/HST break has also been pulling the share of categories with annual price increases greater than 3% and 5% higher, he noted.

The Bank of Canada's preferred measures of inflation similarly pointed to "muted" underlying price growth, added Mendes, noting the average three-month annualized rate of core median and trimmed mean inflation plummeted to 1.2%, the slowest pace of price growth since May 2020.

Mendes said declining shelter costs were a major contributor to the slowdown in inflation. He noted rent prices finally moved lower, with the drop in January also representing the most significant decline since 2020. Market-based indicators of asking rents have been falling for some time and Statistics Canada's measure may now be following suit. Mendes also noted goods prices looked slightly hotter in January, but over the past three months core-goods price growth has remained near pre-pandemic averages and is below the pace of increase in 2025. "That suggests any tariff or supply chain impacts are being offset by muted price growth in other goods categories," he said.

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