Canada’s Inflation Hits 2.4% in December; Core Metrics Show Relief

Canada’s inflation rate has risen to 2.4% in December 2023, primarily influenced by the end of a federal government tax holiday. This increase is two ticks higher than the previous month’s rate of 2.2%, which economists had anticipated would remain stable.

Factors Contributing to Inflation

Statistics Canada reported that the removal of the Goods and Services Tax (GST) from select items in December 2024 led to a decrease in prices for dining, alcohol, and children’s toys a year prior. As these discounts were no longer part of the annual inflation comparison, they contributed to a rise in the Consumer Price Index.

• Restaurant meal prices surged by 8.5% year-over-year.
• Grocery prices increased by 5%, with potato chips and confectionery items seeing significant price jumps.

Specific Price Increases

Notable increases in food prices included:

• Coffee prices rose by over 30%.
• Fresh or frozen beef prices increased by 16.8%.

Month-to-month, grocery price levels remained steady despite these annual influences. The grocery store inflation rate was previously recorded at 4.7% in November 2023.

Gasoline Prices and Transportation Costs

On a positive note, gasoline prices dropped by 13.8% in December due to a global oversupply of crude oil. However, transportation costs saw a significant rise, with airfare prices climbing 34.5% month-over-month, contrasting the previous year’s decline during the holiday season.

Economic Evaluations

Andrew Grantham, a senior economist at the Canadian Imperial Bank of Commerce, noted the unexpected rise in transportation costs and a general acceleration in the headline inflation figure. Despite the headline increase, key core inflation metrics showed signs of moderation, suggesting limited cause for alarm.

Leslie Preston, a senior economist from Toronto-Dominion Bank, highlighted that underlying inflation remains above the Bank of Canada’s 2% target but is trending closer to it. Core inflation could potentially align with the target over the next year as prior inflation concerns ease.

Future Implications

Doug Porter, chief economist at the Bank of Montreal, stated that while some progress on core inflation is evident, it is insufficient to prompt further rate cuts by the Bank of Canada. The central bank’s benchmark interest rate was maintained at 2.25% in December, and upcoming interest-rate decisions will take the December inflation data into account.

Additionally, surveys revealed that trade-related uncertainties and high tariffs continue to affect consumer confidence, contributing to inflation concerns across Canada. Despite these challenges, the market dynamics related to tariffs are no longer pressuring businesses to increase prices.