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Higher Gas Prices Fueled Year-Over-Year Price Growth in December

Canadian Economics

By: Kiefer Van Mulligen

  • In December, the Consumer Price Index (CPI) rose by 3.4 per cent (y/y). This was higher than November’s 3.1 per cent (y/y) increase.
  • Gasoline prices fell by 4.4 per cent (m/m) but were 1.4 per cent higher than a year ago. Year-over-year, food prices increased in stores (+4.7 per cent) and restaurants (+5.6 per cent).
  • Core CPI (excluding food and energy) grew by 3.4 per cent in December (y/y), slightly lower than the 3.5 per cent increase (y/y) in November. Higher prices in several shelter, food, and transportation subcategories were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI grew by 0.3 per cent in December (following a 0.3 per cent gain in November).
  • The average of the Bank of Canada’s three core inflation measures stayed flat at 3.7 per cent in December. CPI-common remained at 3.9 per cent and CPI-median was unchanged at 3.6 per cent while CPI-trim accelerated to 3.7 per cent.

Key insights

  • Year-over-year price growth ticked up in December, driven primarily by fluctuating gasoline prices. Although the price of gas fell by 4.4 per cent from November, it was higher than at the same time in 2022. This base-year effect added pressure to headline consumer price index growth. Price growth for other consumer essentials remained elevated. Rent price growth, for example, accelerated in December to 7.7 per cent (y/y) compared to 7.4 per cent in November. Price growth of food purchased in stores remained steady at 4.7 per cent (y/y).
  • For 2023, Canada’s CPI grew by 3.9 per cent. This was significantly lower than 2022’s 6.8 per cent gain but the second-fastest pace of annual growth since 1991.
  • Some of the Bank of Canada’s criteria for inflation are moving in the right direction, though some are not. Corporate pricing behaviour, as evidenced by recent survey data, continues to normalize, if gradually. Smaller shares of businesses intended to raise prices by larger amounts or more frequently than usual. The Bank has also acknowledged that the balance between supply and demand in the economy has largely evened out. However, core inflation measures showed some worrying signs in December. CPI-trim increased to 3.7 per cent from 3.5 per cent in November, and CPI-median remained flat. The Bank wants to see a “sustained easing of core inflation,” and, in this regard, December’s release is a step in the wrong direction.
  • Inflation’s descent could be compromised by elevated consumer inflation expectations. The Bank also wants to see inflation expectations, which can feed through into wage demands, fall. One of the toxic longer-term implications of a period of elevated inflation is that prices and price changes continue to have a lot of bearing on consumer and business decision-making. When price growth is stable, these factors generally recede into the background. Even if inflation continues to cool (as we expect it will), it may be some time before people’s perception of, and expectations for, inflation eases. This could manifest as enduringly elevated wage demands.

For more details about our inflation forecast and inflation’s impact on the Canadian economy, please consult our Canadian Five-Year Outlook.

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