Inflation trends lower as Bank of Canada seen on hold

Dominique Lapointe, director, macro strategy at Manulife Investment Management, joins BNN Bloomberg to discuss January’s CPI data.

Canada’s inflation rate edged lower in January, with shelter costs and core price measures showing further signs of easing as economic growth remains subdued.

BNN Bloomberg spoke with Dominique Lapointe, director of macro strategy at Manulife Investment Management, who said broad-based disinflation and trade uncertainty are likely to keep the Bank of Canada on hold.

Key TakeawaysHeadline inflation slowed to 2.3 per cent in January, undershooting expectations despite the fading impact of last year’s GST break.Core inflation momentum has cooled, with three-month trends running below the Bank of Canada’s two per cent target.Shelter costs are weakening, with slower mortgage interest growth and declining rents in several major cities.Wage growth and overall economic activity remain soft, reinforcing broader disinflationary pressures.Trade uncertainty and moderate growth reduce the likelihood of rate hikes, with the central bank expected to remain on hold.Dominique Lapointe, director, macro strategy at Manulife Investment Management Dominique Lapointe, director, macro strategy at Manulife Investment Management

Read the full transcript below:

ANDREW: Let’s drill into the inflation rate. It slowed slightly to 2.3 per cent last month. Economists had expected it to hold steady at 2.4 per cent. It’s interesting as well because a year ago the federal government cut GST rates, which brought down prices for alcohol and restaurants. That cut is no longer in effect, which has tended to push prices higher, for example in restaurants. Still, inflation came in slightly below expectations. Let’s get more from Dominique Lapointe, director of macro strategy at Manulife Investment Management. Dominique, thank you very much for joining us.

DOMINIQUE: Good morning.

ANDREW: Was there any surprise for you in these numbers? Anything jump out?

DOMINIQUE: I think it’s a very good report overall. If it weren’t for last year’s tax break that you just mentioned, we would likely be very close to, or at, two per cent on headline CPI. For about three months now, it has been difficult to find meaningful inflationary pressure in Canada.

That’s consistent with what we see elsewhere in the economy. Wage growth is not very strong, and companies are saying they do not intend to raise wages significantly this year. At the same time, overall economic growth is subdued. So it’s consistent that we are seeing weaker inflation reports. That’s probably good news for policymakers at the Bank of Canada.

ANDREW: You mentioned companies and their ability to increase prices. Do companies feel they can get away with raising prices right now?

DOMINIQUE: It has been documented that when input prices were rising, companies had the ability to pass those costs through. When input prices come down, they are not always quick to lower prices, especially at the retail level.

At the moment, however, they do not have much ability to pass on higher costs, and they are also reporting that input costs are not rising as quickly as before. So I do not think that is the biggest issue right now.

ANDREW: You touched on disinflationary forces, including slowing wage growth. Is there any risk of moving toward deflation at this stage?

DOMINIQUE: Outright deflation is still very far off. Inflation is around 2.3 per cent. Core measures, which strip out volatile items, are depending on the measure slightly above two per cent year over year, but on a momentum basis over the last three months they are running below target, around 1.7 per cent.

We are still very far from deflation. Where we are seeing weakness is in shelter, which is unusual in Canada. Mortgage interest costs are slowing because mortgage rates are lower than a year ago. Home prices are either slowing or falling, depending on the city, and rental prices are also declining, which is rare. That is having spillover effects on related categories such as insurance and repairs. That is positive news for consumers.

ANDREW: On rental weakness, is that a national story or mainly driven by Toronto, given the surplus of condos?

DOMINIQUE: It depends on the market. It is heavily influenced by Toronto and Vancouver, where units built as condos are being redirected to the rental market if they have not sold. But in other markets, including Montreal where rents are controlled, there is also some slowdown.

It is both a national and a city-by-city story. The rental market remains tight and rents are still high relative to incomes. The key point is that rent growth is slowing.

ANDREW: Do you think it is highly unlikely the Bank of Canada will raise rates this year?

DOMINIQUE: Yes. After the December labour force survey showed strong job growth, markets began to price in the possibility of one or even more rate hikes this year. Some forecasters anticipate hikes. We do not share that view for three reasons.

First, inflation does not appear to be a major concern. Second, economic growth is not very strong, so it is difficult to see sustained wage pressures emerging. Third, and most importantly, there is significant uncertainty related to trade, including the upcoming USMCA renewal process. That makes it difficult for the Bank of Canada to move in either direction.

ANDREW: So do you expect the Bank of Canada to remain on hold for now?

DOMINIQUE: That is our view, and it has been since October. Policymakers see the policy rate as slightly below neutral, providing a modest boost to the economy. We see some resilience in consumption, and housing activity could pick up modestly by mid-year, but not enough to create a major acceleration.

There is considerable uncertainty. If there were greater clarity on trade with the United States and business investment strengthened, there could be some scope for firming. Until then, we think the Bank of Canada will remain on hold and signal that it intends to stay there.

ANDREW: Dominique, thank you very much.

DOMINIQUE: Thank you.

ANDREW: Dominique Lapointe, director of macro strategy at Manulife Investment Management.

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This BNN Bloomberg summary and transcript of the Feb. 17, 2026 interview with Dominique Lapointe are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.