Inflation is sitting right around target
Last week, Statistics Canada reported that Canada's Consumer Price Index slowed to 2.3% year-over-year in January, down slightly from 2.4% in December. That keeps inflation just above the Bank of Canada's 2% target — but there's an important nuance.
The federal GST/HST holiday (which ran from mid-December 2024 to mid-February 2025) is still influencing the numbers. If you strip that out, inflation would have landed closer to 2.1%.
In other words, inflation is effectively sitting right around target.
Shelter costs are finally cooling
One of the most important developments? Shelter costs. Shelter inflation rose just 1.7% year-over-year in January — the first time in nearly five years it's come in below 2%.
That slowdown is being driven by slower rent growth and lower mortgage interest cost increases. And those pressures should continue easing as we move through the year.
Since shelter has been one of the biggest contributors to elevated inflation over the past few years, this cooling trend gives the Bank of Canada more breathing room.
Core inflation is even softer
If you look beyond headline inflation and focus on the Bank's preferred core measures (CPI-Median and CPI-Trim — the ones that smooth out one-time swings), the trend is even clearer. Measured over the last 90 days, both gauges are running well below 2%. That's significant.
The Bank of Canada doesn't just worry about inflation running too hot — it also pays attention to inflation drifting too low. And right now, the broader trend is clearly pointing downward.
What this means for interest rates
The Bank of Canada's policy rate currently sits at 2.25%, which it considers the bottom end of its 'neutral' range — meaning it's neither stimulating nor restricting the economy.
Given cooling inflation, softer economic data, and decelerating shelter costs, there's room for further rate cuts.
Historically, during rate-cut cycles, the Bank has typically moved policy rates into stimulative territory — around 2% or lower. I expect this cycle will follow a similar path.
And in my view, the longer the Bank waits to move rates into a clearly stimulative range, the more it may ultimately need to cut to stay ahead of economic slowing.
If your mortgage is coming up for renewal
Is your mortgage coming up for renewal? Then here's the real question: will you pass your lender's 'laziness test'? Most people don't — and it costs them.
Strategy matters more than headlines — and more than the rate alone.
