The December Consumer Price Index (CPI) report revealed a continued slowdown in inflation, with the headline rate reaching its lowest point since February 2021.
The drop was also aided by the federal government’s temporary GST/HST holiday that started on December 14, with the exemption continuing for the full month of January.
The Bank of Canada’s preferred core inflation measures continued to ease on an annual basis in December but increased compared to November. As a result, their three-month averages rose and remain above the Bank’s neutral target range.
December inflation report highlights
November 2024 (YoY) | December 2024 (YoY) | 3-mo annualized | |
---|---|---|---|
Headline CPI | 1.9% | 1.8% | 2.8% |
CPI-Median | 2.6% | 2.4% | 3.4% |
CPI-trim | 2.6% | 2.5% | 3.7% |
Shelter | 4.6% | 4.5% | 5.1% |
Rent | 7.1% | 7.7% | |
Mortgage interest cost | 13.2% | 11.7% | 7.2% |
What economists are saying
Following the release of the inflation report, here’s what some of Canada’s top economists had to say:
On core inflation measures:
- Scotiabank: “What matters here is that Canadian core inflation remains hot and continues to put upward pressure on the BoC’s 2% inflation target. That’s true in terms of the Bank of Canada’s preferred core inflation readings and it’s also true for traditional core CPI that only excludes food and energy that climbed by the most since May.”
On the GST/HST holiday
- National Bank (Matthieu Arseneau & Ethan Currie): “Excluding indirect taxes, which fell as a result of the GST/HST holiday, inflation was 0.06%, the biggest increase in December since 2007 (0.6% m/m after seasonal adjustment, largest in 16 months). Core inflation measures, which exclude the impact of indirect taxes, rose in December also at rates too high for the central bank’s target.”
- CIBC (Andrew Grantham): “Canada’s inflation data is only going to get harder to dissect in January, with the full month impact from the GST/HST tax break taking hold.”
- Desjardins (Randall Bartlett): “While the further deceleration in headline CPI inflation was a positive in December, this is muddied by the GST/HST holiday that started in the month. January and February CPI readings will be similarly distorted … Indeed, the drag from lower sales taxes will offset some of the base effects that were expected to push inflation materially higher in Q1 2025, thereby keeping inflation at the start of the year close to the Bank’s 2% target.”
On mortgage interest costs:
- RBC (Nathan Janzen & Abbey Xu): “Growth in mortgage interest costs continued to slow as earlier declines in interest rates continue to filter through household effective borrowing costs, but still account for a disproportionate share of total year-over-year CPI growth (~30% as of December).”
On the impact on next week’s Bank of Canada’s rate decision:
- TD (Leslie Preston): “…core inflation pressures have picked up over the past three months, suggesting that inflation readings are likely to move up a bit in the months ahead. This will give the Bank of Canada reason to adopt a more gradual pace of interest rate cuts this year. We expect a quarter point cut at every other decision in 2025.”
- BMO (Douglas Porter): “We believe that the heavy overhang of trade uncertainty—possible U.S. tariffs—overrides almost all else. As a result, we suspect that today’s reading is just good enough to allow the Bank of Canada to trim next week, for risk management purposes.”
- CIBC: “through the volatility it still appears that core price pressures are low enough, and the economy weak enough, to justify a 25bp reduction in interest rates from the Bank of Canada next week.”
- Scotiabank (Derek Holt): “I don’t believe that the BoC should cut but they may well take the easy route in what’s priced…The BoC is already at or very close to a neutral rate by contrast to the Federal Reserve…Therefore, what’s the rush to cut after 175bps of cuts to date? I know one thing for sure: I wouldn’t cut at this point while leaving all options open going forward.”
- Desjardins: “With the inauguration of President Donald Trump yesterday, downside risks to the economy abound, not least from the threat of a 25% tariff being introduced on February 1. This economic uncertainty reinforces our call the next rate cut in January is likely to be a modest 25 basis points, and that subsequent rate reductions should be of a similar magnitude.”
- National Bank: “…we believe that the Bank of Canada should continue to ease monetary policy by cutting its policy rate by 25 basis points next week. This would give us a little more hope of seeing economic growth above potential assuming Canada is able to avoid a tariff war with our largest trading partner.”
Current policy rate & bond yield forecasts from the Big 6 banks
Bank of Canada bank of canada rate forecasts Consumer Price Index (CPI) CPI CPI inflation CPI-median CPI-trim inflation mortgage interest cost rate forecast Rate forecast table statcan Statistics Canada inflation
Last modified: January 21, 2025