RBC Says Lower Inflation Leaves Bank of Canada With More Flexibility

11:22 AM EST, 02/17/2026 (MT Newswires) -- The tick lower in Canada's headline consumer price index year-over-year rate to 2.3% in January from 2.4% in December was despite tax-related distortions that biased the measure higher with after-tax prices this year measured against tax-exempt prices a year ago during the temporary 2024/2025 GST/HST tax holiday, said RBC.

Excluding the impact of indirect taxes, year-over-year price growth slowed to 2.1%. The Bank of Canada's core trim and median measures -- designed to provide a better gauge of underlying price growth and, critically, exclude changes in indirect taxes -- continued to edge lower, dropping to 2.5% on average on a year-over-year basis from 2.6% in December on a smaller than expected 0.1% month-over-month change.

Lower inflation readings leave the BoC with more flexibility to respond to weakening economic conditions with lower interest rates if necessary, although RBC doesn't expect, as a base case, that additional reductions will be needed. Pockets of price growth are still high -- grocery prices in particular.

Year-over-year growth in the trim and median measures has still been above the 2% inflation target for almost five years. There have been signs that per-worker labor markets have started to improve at current levels of interest rates, added the bank.

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