Canada's inflation rate fell to 1.8% in February but experts warn it's about to rise again
Don't get used to it.
Statistics Canada's new annual inflation numbers for February 2026 are out.
Statistics Canada says the annual rate of inflation dipped below two per cent in February as the end of last year's federal "tax holiday" helped take some steam out of the yearly price comparisons.
The agency said Monday that February's inflation reading came in at 1.8 per cent year-over-year, half a percentage point lower than January's figures and just under economists’ expectations for the month.
The main factor driving the headline number lower was the end of last year's tax holiday, which saw the federal sales tax taken off a variety of household staples, gifts and dining out for a two-month period ending mid-February 2025.
Lower prices from the tax break were only in effect for half of February last year compared with all of January, making the annual inflation calculations somewhat better last month.
Restaurant meals benefited most as the tax relief started to fall out of the inflation calculations. Annual inflation in the category cooled to 7.8 per cent in February from 12.3 per cent in January.
Toys, games and hobby supplies also saw some inflation relief in the waning days of the tax holiday, StatCan said.
Some grocery staples were also included in the temporary tax break, but StatCan said there was otherwise modest but "broad-based" inflation relief at the grocery store in February.
Inflation on food purchased from stores cooled to 4.1 per cent in February from 4.8 per cent the month previous. Fresh and frozen beef — long a pain point at the grocery store — saw its annual price hike cool to 13.9 per cent last month, nearly five percentage points lower than in January.
A month-over-month decline in the prices of cellular services also helped drive the annual inflation rate lower in February.
StatCan said the cost of gasoline, meanwhile, started to creep higher at the end of the month in the lead up to the war in the Middle East, which has pushed prices at the pump sharply higher in recent weeks.
TD senior economist Leslie Preston said in a note to clients Monday that she expects the headline inflation figure will rise to around three per cent in the months ahead thanks to the oil price shock.
The Bank of Canada will be carefully analyzing the latest price figures as the central bank is set for an interest rate decision on Wednesday.
The February inflation report comes after a weak jobs report from StatCan on Friday showed a loss of 84,000 jobs last month, driving the unemployment rate up to 6.7 per cent.
CIBC senior economist Katherine Judge said Monday's "tame report will be welcomed by policymakers ahead of the energy price shock, as it shows that labour market slack is keeping a lid on core prices."
February's inflation data showed further signs of easing in the Bank of Canada's preferred core measures of inflation that tend to strip out more volatile inputs such as energy and food prices.
Preston said she expects the Middle East war will have less of an effect on these measures of underlying inflation, which should keep close to the central bank's two per cent target through much of 2026.
The Bank of Canada is widely expected to remain on pause this week, Preston said, but she added economists will be listening carefully to how the central bank is gauging the impact of the oil shock on the economy.
This report by The Canadian Press was first published March 16, 2026.