Surge in Consumer Prices Marks Challenging December for Canada

In December, Canadian consumer prices rose by 2.4%, surpassing expectations due to last year's tax break effects. However, core inflation indices continued to cool, marking a deceleration trend, as the Bank of Canada maintains steady interest rates. Fluctuations were noted in gasoline and grocery prices.

Consumer prices in Canada rose unexpectedly by 2.4% in December, propelled by last year's sales tax holiday, data revealed on Monday. While core inflation indices continued a three-month cooling trend, analysts' projections of a 2.2% inflation rate for December were surpassed.

Statistics Canada reported a 0.2% monthly decline in the consumer price index, less than the 0.3% drop anticipated by the market. The core inflation measures, namely CPI-median and CPI-trim, achieved their lowest rates since December 2024, with CPI-median dropping to 2.5% and CPI-trim falling to 2.7%.

The deceleration in core prices reassures the Bank of Canada, which held its key policy rate at 2.25% last month. The rising headline inflation in December resulted from a temporary sales tax break on select food and children's items. A year-over-year gasoline price drop helped moderate acceleration in the annual rate, balancing an annual 5% growth in grocery prices.