How Inflation Affects Your Savings and Purchasing Power in 2026

A Closer Look at Recent Inflation: 2025–2026

To provide a clearer picture of the current economic environment, let’s examine the recent inflation trends in both the United States and Canada, and see how they compare to the turbulent years that preceded them.

United States Inflation at a Glance

In the U.S., the annual inflation rate for 2025 was 2.7%, a meaningful moderation from the 2.9% rate seen in 2024 and a dramatic improvement from the 8.0% peak recorded in 2022. This cooling trend has continued into early 2026, with the annual rate holding steady at 2.4% through February 2026. [1]

Sources: U.S. Bureau of Labor Statistics [1], Minneapolis Federal Reserve [2]

The key drivers behind U.S. inflation in 2025 were food away from home (up 4.1%), medical care (up 3.2%), and shelter costs. On the positive side, gasoline prices fell 3.4% for the third consecutive year, providing meaningful relief at the pump. The Federal Reserve’s sustained interest rate policy has been central to bringing inflation down from its 2022 peak. To understand more about how the Fed manages this process, see our article on how the Federal Reserve controls inflation.

Canada Inflation at a Glance

Canada has seen a more pronounced cooling of inflation, with the annual average rate for 2025 at 2.1%, down from 2.4% in 2024 and well below the 6.8% peak of 2022. The rate for January 2026 was 2.3%. [3]

Sources: Statistics Canada [3] [4]

A notable factor in Canada’s 2025 inflation story was the removal of the consumer carbon price in April 2025, which significantly reduced gasoline and natural gas prices. However, grocery prices accelerated sharply, rising 3.5% on average — driven by a 13.5% jump in fresh beef prices, higher coffee costs due to adverse weather in growing regions, and the impact of retaliatory tariffs on U.S. goods. Rent prices, while slowing from the 8.2% surge of 2024, still rose 5.0% nationally and have climbed a staggering 28.5% since 2020. [3]

Frequently Asked Questions

1. What is the difference between inflation and the cost of living?

Inflation is the rate at which the general level of prices for goods and services is rising, while the cost of living is the total amount of money needed to sustain a certain standard of living in a particular place. Inflation is a major driver of rising living costs, but the cost of living also reflects local factors like taxes, housing markets, and wage levels. Two cities can have the same inflation rate but very different costs of living.

2. How does the government measure inflation?

The most common measure is the Consumer Price Index (CPI), which tracks the average change in prices paid by consumers for a fixed “basket” of goods and services — things like groceries, rent, gasoline, and healthcare. In the U.S., the Bureau of Labor Statistics (BLS) publishes the CPI monthly. In Canada, Statistics Canada does the same. The CPI is the number you hear quoted most often when news reports discuss the inflation rate.

3. Can inflation ever be a good thing?

A small, steady amount of inflation — typically around 2% annually — is generally considered a sign of a healthy, growing economy. It encourages spending and investment, because consumers and businesses are motivated to act now rather than wait for prices to rise further. It also gives central banks room to cut interest rates during downturns. The problem arises when inflation runs too hot for too long, eroding purchasing power faster than wages can keep up.

4. What is “core inflation” and why does it matter?

Core inflation excludes the volatile categories of food and energy from the CPI calculation. Because food and energy prices can swing dramatically due to temporary factors — a drought, a geopolitical conflict, a cold winter — economists and central banks often focus on core inflation to get a clearer picture of the underlying, persistent inflation trend. When the Federal Reserve or the Bank of Canada sets interest rate policy, core inflation is one of the most important numbers they watch.

5. How can I track the current inflation rate?

You can find the latest official inflation data directly from the government agencies that calculate it. For the United States, visit the U.S. Bureau of Labor Statistics CPI page. For Canada, visit the Statistics Canada Consumer Price Index portal.

**References**

[1] Bureau of Labor Statistics, U.S. Department of Labor, _The Economics Daily_, “Consumer Price Index: 2025 in review,” January 21, 2026. https://www.bls.gov/opub/ted/2026/consumer-price-index-2025-in-review.htm

[2] Federal Reserve Bank of Minneapolis, “Consumer Price Index, 1913–.” https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator/consumer-price-index-1913-

[3] Statistics Canada, _The Daily_, “Consumer Price Index: Annual review, 2025,” January 19, 2026. https://www150.statcan.gc.ca/n1/daily-quotidien/260119/dq260119b-eng.htm

[4] Statistics Canada, _The Daily_, “Consumer Price Index, January 2026,” February 17, 2026. https://www150.statcan.gc.ca/n1/daily-quotidien/260217/dq260217a-eng.htm