Canada’s Inflation Hits 2.4% in December; Key Indicators Soften
Canada’s inflation rate reached 2.4% in December 2025, marking a notable uptick fueled by certain temporary fiscal policies. This increase was primarily due to a previous sales tax exemption implemented on food and children’s items a year prior.
Details of the Inflation Report
Monthly data revealed a slight decrease in the Consumer Price Index (CPI) of 0.2%. This decline fell short of market expectations, which anticipated a 0.3% drop.
Core Inflation Indicators
Core inflation measures continued to soften, with both CPI-median and CPI-trim showcasing their slowest readings in a year.
- CPI-median: Dropped from 2.8% in November to 2.5% in December.
- CPI-trim: Decreased from 2.9% to 2.7% in the same period.
This easing of core prices is significant as it may influence the Bank of Canada’s monetary policy. Analysts suggest the central bank is likely to maintain its current interest rate, which was held steady at 2.25% in December.
Market Reactions
The Canadian dollar showed a slight increase, trading at 1.3880 against the U.S. dollar, as broader market forces exerted downward pressure on the greenback. Economists predict the central bank will continue to keep interest rates unchanged throughout 2026.
Factors Influencing Inflation
Key contributors to the annual inflation increase include:
- The temporary sales tax exemption on selected items.
- Restaurant prices, significantly impacted by the tax holiday, rose notably.
Contrarily, gasoline prices witnessed a year-over-year decline of 13.8% in December, following a 7.8% drop in November.
Yearly Inflation Trends
The annual average inflation rate for 2025 stood at 2.1%, showing a slight decrease from the 2.4% rise in 2024. Despite the higher headline figure for December, underlying inflation seems consistent with the target of 2% set by the central bank.
In summary, while December’s inflation figures reflected short-term influences, the core measures suggest stability in the Canadian economy moving forward.
