Partner Center

Canadian inflation ticked higher in January, but core pressures stole the spotlight on Tuesday.

Headline CPI edged up 0.1% on the month, pushing the annual rate to 1.9% from December’s 1.8%, right in line with expectations.

The details, though, painted a more complex picture.

Gasoline prices surged 8.6% year-over-year, fueling the increase, while the ongoing GST/HST tax holiday kept a lid on broader price pressures—leading to record drops in categories like restaurant meals (-5.1%).

Core inflation, however, remained sticky.

Bank of Canada’s (BOC) preferred measures accelerated, with both measures running above 3% on a three-month annualized basis:

  • Median CPI: 2.7% (up from 2.5%)
  • Trimmed Mean CPI: 2.7% (up from 2.5%)

Link to Canada’s Consumer Price Index Report (January 2025)

Traders tempered their March BOC rate cut expectations after the report’s release, with odds slipping to around 30%, factoring in both firm core inflation and the risk of U.S. tariffs fueling future price pressures.

Looking ahead, February’s CPI could still reflect the GST/HST holiday’s impact, but that fades once the tax break ends on February 15. With trade uncertainties looming, markets will be watching how underlying inflation trends unfold.

Market Reactions

Canadian Dollar vs. Major Currencies: 5-min

CAD Slipped on Headline CPI but Rebounded on Oil and Core Inflation

Overlay of CAD vs. Major Currencies Chart by TradingView

The Canadian dollar, which weakened shortly before the release, swung lower after the headline CPI came in as expected.

But markets quickly honed in on the persistent core inflation, which suggests the BOC may need to tread carefully on rate cuts.

WTI crude’s oil’s rally to $71.85 per barrel may have also helped the Loonie, as Ukraine’s drone attack on an export pipeline in Russia drove oil (and the oil-related CAD) higher after the London close.

These headlines likely enabled the Loonie to cap the day higher except against the U.S. dollar and the British pound.