
GST Holiday Trimmed CPI Growth in December
- In December, the Consumer Price Index (CPI) rose by 1.8 per cent (y/y). This was lower than November’s 1.9 per cent (y/y) increase.
- Gasoline prices fell by 0.6 per cent month-over-month but were 3.5 per cent higher than a year ago. Year-over-year, food prices increased by 0.6 per cent (y/y) following a 2.8 per cent gain in November.
- Core CPI (excluding food and energy) grew by 2.1 per cent in December (y/y), slightly higher than its 1.9 per cent increase in November. Several shelter components were key contributors to overall CPI growth.
- On a seasonally adjusted monthly basis, the CPI rose by 0.2 per cent in December (following a 0.1 per cent increase in November).
- The average of the Bank of Canada’s two preferred core inflation measures fell to 2.5 per cent in December. CPI-median fell to 2.4 per cent (from 2.6 per cent in November) while CPI-trim dropped to 2.5 per cent (from 2.6 per cent in the previous month).
Key insights
In December, the CPI remained below the 2.0 per cent midpoint of the Bank of Canada’s inflation-control target range. The federal GST/HST holiday began in mid-December, which removed taxes from several goods, including food at restaurants and some types of alcohol, leading to lower prices for these goods in the CPI calculation. Overall, food prices increased by only 0.6 per cent (y/y) in December, as prices for food purchased at restaurants fell by 1.6 per cent (y/y). Price growth for some components on the CPI remained elevated, particularly for rent which increased by 7.1 per cent (y/y).
Many domestic drivers of inflation will continue to normalize. The pace of shelter price growth will fall as population growth slows and interest rate cuts lower borrowing costs. Wage pressures are also waning. Consumers’ inflation expectations, which are linked to wage demands, have nearly fallen to their pre-pandemic norm. Most firms (around 70 per cent) expect normal-sized wage increases in 2025. However, the Bank of Canada’s latest business survey indicates that the balance of firms expects to raise prices at a pace similar to last year, as an expected pickup in demand this year could allow businesses to raise prices to account for previous cost increases. All else being equal, modest upward pressure on inflation could lie in store this year, though the larger tectonic drivers of recent price growth have softened.
United States President Donald Trump’s proposed tariff policy toward Canadian exports is on hold—though perhaps only for a week. Trade disruption is presently the largest risk to the inflation outlook. The Canadian dollar remains weak relative to the U.S. dollar—a trend already pushing up the cost of many imported goods in the CPI. In the fourth quarter of 2024, around 40 per cent of Canadian firms expected negative effects on their business stemming from the new U.S. administration, largely from higher anticipated input costs. Following his inauguration, President Trump opined that his tariff plans could be implemented as early as February 1.
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