By Ismail Shakil
OTTAWA, Jan 19 (Reuters) – Consumer prices in Canada rose a faster-than-expected 2.4% in December, largely due to the base effect of the previous year’s sales tax break, but closely watched core measures of inflation cooled for the third consecutive month, data showed on Monday.
Analysts polled by Reuters had forecast inflation would hold at November’s 2.2% rate.
On a monthly basis, the consumer price index declined by 0.2%, Statistics Canada data showed. The monthly decline was less than market expectations of a 0.3% decrease.
The Canadian central bank’s preferred measures of core inflation, CPI-median and CPI-trim, continued to ease and were the lowest since December 2024. CPI-median – or the value at the middle of the set of price changes in a month – cooled to 2.5% from 2.8% in November, while CPI-trim – which excludes the most extreme price changes – decreased to 2.7% from 2.9%.
The deceleration in core prices should allow the Bank of Canada to keep rates on hold, economists said after the inflation report. Money markets expect rates to stay unchanged this year.
The Canadian dollar was trading 0.3% higher at 1.3880 per U.S. dollar, or 72.05 U.S. cents, as the greenback posted broad-based declines.
The Bank held its key policy rate steady at 2.25% in December and said this was about the right level to keep inflation close to its 2% target.
“Despite a somewhat stronger than expected headline reading, today’s data are still consistent with underlying inflation being close to 2%, and as a result we continue to see no change in the Bank of Canada overnight rate throughout 2026,” said Andrew Grantham, a senior economist at CIBC Capital Markets.
Jessica Hinds, a director in Fitch Ratings’ Economics team, said Monday’s data was “highly unlikely to change the calculus” for the central bank.
The rise in headline inflation in December was driven by a temporary sales tax break on certain food and children’s items authorized by the previous Liberal government headed by Justin Trudeau in the comparative December 2024 period.
Restaurant prices, one of the segments affected by the tax holiday, were the largest contributor to the acceleration in the annual inflation rate in December 2025.
Moderating the acceleration in the annual rate was a year-over-year decline in prices for gasoline, which fell 13.8% in December after a 7.8% decline in November.
Excluding volatile food and energy, inflation rose 2.5% in the month.
Services price inflation in December accelerated to 3.3% from 2.8% in November, while goods prices rose by 1.2% after 1.5% in the previous month.
On an annual average basis, prices increased 2.1% last year, following a 2.4% rise in 2024.
(Reporting by Ismail Shakil. Additional reporting by Fergal Smith and Dale Smith. Editing by Mark Potter)
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