Canada’s inflation rate declined to an annualized rate of 1.8% in December amid growing signs that the economy is slowing down.
The December inflation reading is below the 2% annualized target set by the Bank of Canada and gives the central bank leeway to continue lowering interest rates to spur economic growth.
On a monthly basis, CPI decreased 0.4 per cent in December from November of last year.
In November, inflation in Canada cooled to 1.9% as the temporary break in the Goods and Services Tax (GST) lowered the costs of restaurant meals, alcohol, and toys.
Economists surveyed by the Reuters News Agency had expected Canada’s inflation rate to remain unchanged at 1.9% in December.
The December inflation decline was partly the result of the GST tax break that continued through Christmas.
Statistics Canada, which released the inflation data, said that 10% of items in the Consumer Price Index (CPI) were impacted by the tax break.
However, inflation has also moved lower in recent months as the Canadian economy slows and as energy prices, including gas at the pumps, retreats.
Inflation in Canada has steadily declined from a peak of 8.1% in June 2022.
However, shelter costs continue to rise, increasing 4.5% year-over-year in December. Rent prices remain especially elevated, having gained 7.1% annually in the final month of 2024.
The steady decline in inflation, coupled with a slowing economy, has markets pricing in more interest rate cuts from the Bank of Canada.
Futures markets are pricing in an 81% chance that Canada’s central bank cuts rates by 25-basis points at its next policy meeting scheduled for Jan. 29.
