Quick take

Canada’s CPI ended 2021 on a high note

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  • In December, the Consumer Price Index (CPI) rose by 4.8 per cent (y/y). In 2021, the CPI increased by 3.4 per cent – the fastest pace since 1991.
  • Gasoline prices fell by 4.1 per cent (m/m) but were 33.3 per cent higher than a year ago. Year-over-year food prices also increased, both in stores (+5.7 per cent) and restaurants (+4.1 per cent).
  • Excluding food and energy, the CPI climbed by 3.4 per cent in December. Year-over-year prices were higher in all eight major CPI components. The transportation (+8.9 per cent) and shelter (+5.4 per cent) components contributed most to the increase in the CPI.
  • On a seasonally adjusted monthly basis, the CPI went up 0.3 per cent in December, matching the increase of 0.3 per cent in November.
  • The average of the Bank of Canada’s three core inflation measures bumped up to 2.9 per cent in December from 2.7 per cent in November. CPI-trim increased to 3.7 per cent, CPI-median grew to 3.0 per cent, and CPI-common moved up to 2.1 per cent.

Key Insights:

  • From boardrooms to living rooms, inflation remains the topic du jour. December’s CPI figures make that unlikely to change any time soon. Inflation has now been above Bank of Canada’s upper target range of three per cent for nine months. Gasoline and housing-related costs remain some of the strongest upward contributors to year-over-year price increases.
  • Whether it was base effects, rebounding energy prices, or supply chain bottlenecks, 2021 was a wild ride for inflation. Some of these factors will ease in 2022, but we still expect that inflation to average above 3 per cent this year. Detailed analysis in Canada’s Food Price Report 2022 suggests that food prices are headed sharply upward. We all need to eat, but higher food prices will hit low-income Canadians the hardest. As consumers see the price of essentials steadily rising at the supermarket and the pump, and as inflation continues to make daily headlines, inflation expectations will continue trending upwards.
  • Our most recent forecast calls for a first interest rate hike in April, but some analysts are expecting it to hit next week. Though inflation is rampant, the spread of Omicron and subsequent restrictions may give the Bank of Canada reason to delay the interest rate liftoff. It might be difficult for Governor Macklem to make the case that, less than two months after the Bank’s projections showed slack being absorbed in the “middle quarters of 2022,” it has now been absorbed in January. We’re sticking to our guns. But after two years of forecasting in a pandemic, a surprise next week wouldn’t necessarily be all that surprising.
Kiefer Van Mulligen

Kiefer Van Mulligen

Economist

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