Scotiabank Notes Markets Barely React to Soft Canadian CPI

12:18 PM EST, 02/17/2026 (MT Newswires) -- Core measures of Canada's January's consumer price index inflation were soft again last month, said Scotiabank after Tuesday's CPI data.

Markets reacted by driving a slight decline in Canadian government bond yields, including about a 2bps drop in the 2s yield, and a mild depreciation of the Canadian dollar (CAD or loonie) of about a quarter of a cent to the US dollar (USD), noted the bank.

A reason for the "mild" reaction is that markets have been trained to understand that the BoC is on a prolonged hold as it evaluates upside and downside risks and the combination of cyclical and structural drivers alongside potential changes to fiscal policy and trade policy, stated Scotiabank.

Another reason is that the numbers are of no clear surprise to the Bank of Canada, according to Scotiabank. The January Monetary Policy Report had 2.0% year over year for headline CPI and the first month of the quarter was 2.3%.

There are a lot of transitory factors from a year ago that will be working through. One is that upward HST relief effects on year-over-year total CPI start to expire next month and more fully by March, after which the elimination of the consumer portion of the carbon tax turns year-over-year upward.

Further, trimmed mean CPI and weighted median CPI were expected by the BoC to average 2.5% year over year and the January figure is at about that.

There is also the important issue of requiring much more data to avoid being "fooled" by a potentially temporary soft patch, wrote the bank in a note. Something similar was witnessed in early 2024, for instance, after which the month-over-month seasonally adjusted annual rate measures of core inflation all took off higher. Short-sighted markets react to short-term data. Central banks should not.

The gyrations in services versus core goods (excluding food and energy) inflation also merit caution, said Scotiabank. Services inflation had skyrocketed in December and fell back in January. Most of the acceleration and then deceleration was in services excluding shelter. Core goods inflation was previously soft and suddenly accelerated by the most since mid-2025.

The heat is finally coming out of how CPI measures rented accommodation, pointed out the bank. This follows a large surge on the back of an influx of temporary residents made up of international students, temporary foreign workers and asylum seekers. Tighter immigration policy has tamped down the temporary resident numbers and cooled rental market pressures until a new equilibrium is achieved.

There could also be temporary weather effects that tamped down many prices as consumers stayed in from one of the coldest and snowiest winters in years.

On the flipside, the high seasonal adjustment (SA) factor applied to traditional core CPI suggests that this measure of inflation would have been softer if the SA factor had been more in line with prior months of January. There is a recency bias to how SA factors are calculated that is somewhat unthinking and automatic, added Scotiabank.

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