Headline CPI inflation edged up slightly to 2.4 per cent year-over-year (y/y) in December, coming in slightly above consensus expectations. The uptick largely reflects base effects from lower prices a year earlier, when the federal government implemented a brief sales tax holiday. The temporary GST/HST exemption in December 2024 applied to spending on items like restaurant meals, alcoholic beverages, toys, games and hobby supplies, children’s clothing, and select grocery products, including confectionery.
As shown in the chart below, the largest contribution to headline inflation came from restaurant meals, where prices rose 5.8 per cent y/y after being exempt from sales taxes the previous year. Grocery prices were flat on the month but up 5.0 per cent y/y, driven by sharp increases in beef and coffee. These increases were partially offset by lower energy costs, with prices at the pump down 13.8 per cent from a year earlier.
Service inflation rose to 3.3 per cent y/y in December, while shelter inflation continued to cool, easing to 2.1 per cent y/y. Prices for owned accommodation rose just 1.3 per cent y/y – the slowest pace in 12 years – supported by more modest increases in mortgage interest costs (+1.7 per cent y/y), declining homeowners’ replacement costs (-1.6 per cent y/y), and falling rented accommodation costs (-4.8 per cent y/y).
The Bank of Canada has focused on broader measures of “underlying inflation” in recent months, but the official core inflation metrics – CPI-median and CPI-trim – continued to cool in December, easing to 2.5 and 2.7 per cent y/y, respectively. CPI-Common has also moved back in line with these measures, as shown in the chart below.
While the headline inflation rate came in above expectations, the increase largely reflects temporary effects from the December 2024 GST/HST exemptions. Although recent developments around core inflation are encouraging, they are unlikely to be sufficient to prompt additional rate cuts from the Bank of Canada in the near term.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Institutional investors are frequently blamed for keeping buyers out of the housing market — but policymakers may be focusing on the wrong targets.
In this week’s Housing Affordability Watch, we examine the real forces shaping home prices and rents, and how the Trump administration’s proposals to limit institutional buyers and expand mortgage-backed security purchases could influence mortgage rates.
Read it here: On the Trail of Heffalumps and Woozles — Why Policymakers Are Following the Wrong Tracks
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
