Slim hopes of a BoC cut vanish after latest inflation reading
The annual rate of inflation ticked higher in Canada in December, rising by 2.4% compared with a year prior thanks mainly to the impact of December 2024’s temporary GST break.
Statistics Canada said on Monday morning that the consumer price index (CPI) rose as exempt goods and services from that tax break fell out of overall movement, offsetting the effect of lower gasoline prices.
December’s headline figure was 0.2% higher than the November reading and appears to copper-fasten the likelihood of the Bank of Canada staying on pause when it announces its first interest rate decision of the year next week.
Mortgage interest costs didn’t feature among the main upward or downward pressures on overall prices in December, although rent was up by 4.9% on an annual basis. Overall, the cost of shelter rose by 2.1% compared with a year before.
Homeowners’ replacement costs fell by 1.6% while prices for restaurant food, telephone services, and passenger vehicles jumped.
Coffee and fresh or frozen beef prices spiked, contributing to a 5% overall increase in grocery costs. Prices for air transportation were slightly lower and travel tour costs dipped by 3.2% year over year.
Central bank governor Tiff Macklem indicated after the BoC’s last decision of 2025 that a prolonged pause was its most likely course of action in the opening months of this year and the latest inflation increase – however mild – appears to strengthen that prospect.
But chances of a rate hike anytime soon also appear distant, with Canadian Imperial Bank of Commerce (CIBC) economists suggesting that sluggish jobs figures and an increase in the unemployment rate are likely to avert chances of an increase.
The bank’s senior economist and executive director Andrew Grantham said last week that he sees evidence that business sector compensation and labour costs are at levels that “should support a further easing in underlying inflation ahead.”
The Bank of Canada is scheduled to announce its next decision on interest rates on Wednesday next week (January 28).
Source CMP
By Fergal McAlinden
