Food Inflation in Canada Expected to Rise Due to Tax Changes

Economists predict a significant increase in food inflation in Canada for January 2026, primarily attributed to recent tax changes implemented by the Liberal government. The consumer price index (CPI) report, set to be released by Statistics Canada, is expected to reflect these changes, with forecasts indicating a rise in the annual inflation rate from 2.4% to as high as 2.6%. This increase is largely due to the expiration of a two-month waiver on the federal portion of the sales tax for dining and certain grocery items that began in mid-December 2024.

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Nathan Janzen, assistant chief economist at RBC, noted that the comparison of prices in January 2026 to those from the previous year will reveal a spike in food price growth, potentially exceeding 7%. He emphasized that the tax-related disruptions are a key factor in this anticipated rise. Randall Bartlett, deputy chief economist at Desjardins, echoed this sentiment, stating that while the tax changes are a significant driver of inflation, other factors such as rising costs for staples like coffee and beef are also contributing to the overall increase.

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The Bank of Canada has identified several additional factors impacting food prices. A report indicated that higher import costs, exacerbated by a weaker Canadian dollar and disruptions in U.S. trade, are affecting the food supply chain. Bartlett remarked, "Ultimately, uncertainty and change that's driven by policy often ends up costing consumers more." This sentiment reflects a broader concern regarding the interplay between government policy and consumer prices.

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Despite the expected rise in food inflation, some economists believe that other areas of the economy may help mitigate overall inflation figures. For instance, ongoing relief from the consumer carbon price, which ended in April, is anticipated to reduce gasoline costs. Additionally, a decline in new home price growth and lower mortgage interest rates, resulting from the Bank of Canada's recent interest rate cuts, may contribute to a more stable CPI.

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The Bank of Canada is closely monitoring inflation trends as it prepares for its next interest rate decision on March 18. Governor Tiff Macklem has indicated that the governing council is satisfied with the current policy rate, despite ongoing trade uncertainties. Economists from Capital Economics noted that the softness in shelter costs could help keep January's CPI in check, suggesting that the anticipated rise in food inflation may not prompt immediate concern from the central bank.

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Critics of the tax changes argue that the government's policies are exacerbating the cost of living for Canadians. They contend that while the tax waivers were intended to provide relief, the subsequent price increases in essential goods undermine their effectiveness. This perspective highlights the tension between government policy and its real-world implications for consumers.

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• “Food price growth could spike above (seven per cent), driven by rising restaurant costs compared to tax-exempt levels a year ago,” — Nathan Janzen, Assistant Chief Economist, RBC

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• “Ultimately, uncertainty and change that's driven by policy often ends up costing consumers more.” — Randall Bartlett, Deputy Chief Economist, Desjardins

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• “I think that's something that could be persistent going forward.” — Randall Bartlett, Deputy Chief Economist, Desjardins

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The upcoming CPI report will provide critical insights into the impact of these tax changes and the broader economic landscape in Canada.

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