BMO Says January's CPI Is Encouraging for Bank of Canada as Inflation Nears Target

10:21 AM EST, 02/17/2026 (MT Newswires) -- Canadian consumer prices stuck the landing below expectations in January, holding steady from the prior month, or up a modest 0.1% month over month in seasonally adjusted terms, said Bank of Montreal (BMO) after Tuesday's CPI data.

That was mild enough to shave the annual inflation rate by a tick to 2.3%, keeping it just below the United States pace of 2.4%, noted the bank. It recalled that prices a year ago had been held down by the temporary GST holiday on restaurant meals, beer, wine and toys, a challenging comparison.

Stripping out the impact of indirect taxes would leave the annual inflation rate just a touch above the Bank of Canada's 2.0% target, pointed out BMO. Core measures were also encouraging, as the median eased a tick to 2.5% year over year and trim fell three ticks to 2.4% -- the average of the two matched the lowest reading in almost five years.

Notably, with small 0.1% month-over-month increases in January, the three-month trend in both measures has melted to just above a 1% annual rate, while the six-month pace is right on 2.0%.

A significant moderation in cellular phone charges clipped the annual increase there to 5.0% from 13.0% in December, which was a 43-year high, stated BMO. Fading shelter costs are also helping to gradually chip away at overall inflation, and January was no exception. One category with a big anticipated decline was airfares at 23.4% month over month, following December's 34.5% surge, and somehow keeping them below year-ago levels.

Food prices rose 0.5% month over month, lifting the category 7.3% year over year. Last year's tax holiday drove the bounce on unfavorable base effects, and a big reversal is expected over the next two months.

Overall, Tuesday's CPI is an encouraging result for the BoC, with inflation finally nearing the 2% target on a broader basis, added the bank. There's still some wood to chop on core inflation, but the shorter-term metrics are moderating noticeably.

Still, Canada's central bank has made it abundantly clear that the bar to cut rates again is quite high, and it continues to stress that monetary policy cannot fix supply shocks, according to BMO.

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