Economists Predict January Food Inflation Surge Due to Tax Changes

Economists are forecasting a notable increase in food inflation for January, largely attributed to recent tax changes. As Statistics Canada prepares to release inflation figures, experts predict that these developments will significantly impact consumer prices.

Projected Surge in Food Prices

The consumer price index report for January is set to be published by Statistics Canada on Tuesday. This release was deferred to accommodate a regional holiday affecting eight provinces. According to a Reuters survey, economists anticipate the annual inflation rate will hold steady at 2.4 percent. However, some predict it may rise to 2.6 percent.

Tax Changes Impacting Inflation

Recent tax changes initiated by the Liberal government have contributed to the expected food price spike. Starting in mid-December 2024, the government temporarily eliminated the federal sales tax on dining and select grocery items. As January 2025 was the sole full month benefiting from this measure, January 2026 is likely to show a marked increase in prices for restaurant meals and food items compared to a year ago.

• Projected annual inflation rate for January 2026: 2.6% (RBC prediction)
• Desjardins predicts a 2.5% inflation rate, influenced by tax shifts.
• Food prices could surge above 7%, driven by increased restaurant expenses.

Influential Economic Factors

While the tax holiday significantly influences inflation, other factors are at play. Randall Bartlett, Desjardins’ deputy chief economist, noted that rising costs of essential groceries, such as coffee and beef, are contributing to the inflation trend. A recent report from the Bank of Canada attributed rising grocery prices to increased import costs, exacerbated by a weaker Canadian dollar.

This situation is compounded by disruptions in U.S. trade that are affecting Canada’s food supply chain, resulting in higher consumer prices across grocery stores. Bartlett emphasized that policy-driven uncertainty typically results in increased costs for consumers.

Outlook for Gasoline and Shelter Costs

Despite the anticipated rise in food prices, some relief is expected in gasoline costs due to the expiration of the consumer carbon price in April. Economists from Capital Economics suggest that a slowdown in housing costs will also help temper the overall inflation number for January.

New home price growth has weakened in recent months, and the Bank of Canada’s previous interest rate cuts are projected to lower mortgage costs. The central bank will analyze the inflation data for February before making its next interest rate decision on March 18.

Governor Tiff Macklem stated the central bank remains satisfied with the current policy rate despite ongoing trade uncertainties. While inflation rates may see slight increases, analysts believe underlying price pressures are easing, indicating a cautious optimism for future inflation figures.