Canada's Inflation Eases with Tax Breaks: BoC Considers Rate Cuts

Inflation in Canada continued its downward trend in December, aided by a sales tax break. The annual rate fell to 1.8%, slightly below expectations. This trend may lead to further Bank of Canada rate cuts. The CPI-median and CPI-trim measures also showed a slight decline.

Inflation in Canada showed further signs of easing in December, according to data released on Tuesday. A temporary sales tax break, effective from mid-month, contributed to the decline, reducing prices for alcohol, restaurant foods, and children's clothing.

The annual inflation rate fell to 1.8%, a slight dip from November's 1.9%, and lower than anticipated by analysts. On a month-on-month basis, the consumer price index contracted by 0.4%.

The continued trend of low inflation, aided by this tax relief, has allowed the Bank of Canada to lower its key policy rate significantly. A further downturn in inflation could prompt additional rate cuts imminently.

(With inputs from agencies.)