Inflation Rate Down Slightly in December; Helped by Federal Tax Break

The Canadian inflation rate dropped further in December, helped by the federal government’s GST and HST tax break on some items. 

Statistics Canada’s consumer price index on Tuesday showed headline inflation rose 1.8% on a year-over-year basis last month, down from a 1.9% increase in November although still slightly higher than expected by analysts and economists.  

Food purchased from restaurants and alcoholic beverages purchased from stores contributed the most to the deceleration in December, StatsCan said, noting the impact of Ottawa’s tax break, which was introduced on Dec. 14 and included food, alcoholic beverages, and tobacco products among others. 

Canadians paid 1.6% less for food purchased from restaurants in December on a year-over-year basis. It marked the index's first annual decline, paired with its largest monthly decline (-4.5%) amid the GST/HST break. Growth in grocery prices also decelerated from the prior month, falling to 1.9% year-over-year, from 2.6% in November. Gas prices rose 3.5% year-over-year. 

Today’s report appears to provide no clear direction for interest rate cuts, with the Bank of Canada set to announce its next rate decision next week. Without the impact of the federal government’s tax break, headline December inflation would have come above the Bank’s preferred target of 2%. Meanwhile, the tax holiday is slated to run until the middle of next month. 

The Bank’s key overnight lending rate now stands at 3.25%, down 175 basis points from June. 

In its annual review of the 2024 consumer price index, StatsCan said that while prices for groceries remained elevated, price growth for food purchased from stores was lower in 2024 (+2.2%) compared with 2023 (+7.8%). Notably, prices for virtually all food indexes grew at a slower pace or declined in 2024. The other edible fats and oils index (+13.3%) grew at the fastest pace — which was a deceleration when compared with a 17.1% gain in 2023 — while oranges had the largest decline at -7.9%.