Food prices fooled you—the GST holiday’s hidden trick

For the first time since May 2017, food inflation in Canada dipped into negative territory, reaching -0.6% in January. The numbers seem reassuring—on the surface. Inflation at restaurants plummeted to an all-time low of -5.1%, while inflation for food purchased in stores stood at +1.9%. But before Canadians celebrate a rare break on their food bills, a deeper look at the data raises questions about whether these figures tell the full story.

One major factor at play is the temporary GST holiday introduced nationwide, which slashed sales taxes on restaurant meals. While some provinces, such as Newfoundland & Labrador, Nova Scotia, Prince Edward Island, and New Brunswick, saw a 15% drop in GST/HST, others had lower reductions, like Ontario with a 13% decrease and most western provinces with a 5% decrease. Yet, despite this tax relief, restaurant inflation didn’t fall as much as one might expect, suggesting that underlying cost pressures in the food service sector remain significant. January 2025 was the only month when the GST holiday covered the entire month, making its impact on inflation particularly pronounced. However, with the GST holiday ending last weekend, consumers may soon feel the effects of returning taxes.

READ: GST holiday ‘a flop’ with few small retailers reporting higher sales, CFIB says

The declines in restaurant inflation varied across regions, indicating that restaurant price reductions have been more about tax cuts than true cost relief. If the GST holiday masked the real trends, what happens now that it has ended? A snapback effect, with higher restaurant inflation, could hit consumers hard. 

Meanwhile, grocery store inflation also appears deflated, but not across the board. Some categories, like eggs and fresh and frozen meats, are rising, bucking the trend. These increases suggest that cost pressures remain in certain areas of the food sector, despite overall declines in food prices. Wages, uncertainty around borders, and tariffs are impacting prices. Additionally, the potential for opportunity pricing—where businesses raise prices opportunistically due to temporary market distortions like the GST holiday—could further exacerbate cost increases for consumers. This brief period of negative food inflation may be more of an anomaly than a sign of lasting relief.