National Bank of Canada analysts expect Canada’s January CPI to be flat month over month. That could pull headline inflation down to 2.3%, with CPI-trim edging lower and CPI-median holding at 2.5%.
They tie the flat CPI print to only a small rise in petrol prices. They also expect headline goods spending to drop by 0.5%.
Inflation Outlook And Policy Implications
Beyond inflation, they expect December retail sales to fall and manufacturing to post small gains. They also see housing starts improving, while existing home sales weaken in major cities.
On trade, they expect gold exports to lift total exports. They estimate the trade deficit could narrow from C$2.2 billion to C$1.4 billion, as higher imports only partly offset the export increase.
January CPI data supports the trend we expected, with headline inflation cooling to 2.4%. Statistics Canada reported this last week. It was close to our 2.3% forecast and extends the clear decline from the highs seen through 2025. This supports the view that the Bank of Canada’s policy is working as intended.
With inflation moving closer to the BoC’s 2% target, markets are now pricing in more than a 60% chance of a rate cut by the July meeting. This is also showing up in derivatives, with more buying of call options on Government of Canada bond futures. Positioning like this points to a growing view that the peak in interest rates is behind us.
Market Positioning And Canadian Dollar
This backdrop may put more downward pressure on the Canadian dollar in the coming weeks. We should consider strategies that benefit from a weaker CAD, especially versus the US dollar, where rate-cut expectations are less settled. In 2025, the currency weakened whenever softer-than-expected inflation data hit the market. That pattern could return.
The outlook is mixed. The case for weaker consumer demand was also confirmed. Statistics Canada’s latest release showed retail sales for December 2025 fell 0.2%, which fits the view of a cautious consumer going into the new year. A “soft landing”—cooling inflation without a deep recession—could support Canadian equities. That could make income strategies, such as selling put options on the S&P/TSX 60 index, appealing for collecting premium.
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