Canada’s Consumer Price Index (CPI) was 0% month on month in January. This was below the forecast of 0.1%.
This means consumer prices did not rise or fall in January. The result was 0.1 percentage points below expectations.
A flat January inflation print is a clear dovish signal for the Bank of Canada. The surprise slowdown in price pressure gives the central bank more room to cut interest rates sooner than expected. We are now pricing in a much higher chance of a rate cut at the April meeting.
This puts immediate downward pressure on the Canadian dollar. USD/CAD jumped to 1.3650 this morning as markets price in lower yields in Canada versus the United States. This pattern is familiar: the loonie fell for months in the second half of 2025 after inflation repeatedly came in below forecasts.
For equities, the news is supportive, especially for the S&P/TSX Composite Index. Lower borrowing costs and a more accommodative central bank are generally positive for earnings and valuations. We are looking at call options on the index, targeting a break above the 22,500 resistance level in the coming weeks.
In fixed income, the reaction was quick. Bond prices rallied as traders moved to price in rate cuts. The Canada 2-year government bond yield—a key signal for the Bank of Canada’s policy path—fell 10 basis points to 3.85% after the release. This supports long positions in Canadian government bond futures.
We should also watch rate-sensitive sectors that tend to benefit most when rates fall. Call options on real estate (REIT) and utility sector ETFs could offer strong upside. In 2025, these sectors often led when markets started to seriously price in monetary easing.
here to set up a live account on VT Markets now
