Both headline inflation and the Bank of Canada’s favoured gauges of underlying pressures decelerated, suggesting the central bank may soon pause its aggressive campaign of interest-rate hikes.
The consumer price index rose 6.3 per cent in from a year ago, Statistics Canada reported Tuesday in Ottawa, slower than the 6.4 per cent gain expected in a Bloomberg survey of economists and down from 6.8 per cent in November. On a monthly basis, the index fell 0.6 per cent in December, the biggest monthly drop since April 2020, exceeding forecasts for a 0.5 per cent drop.
Two key yearly measures tracked closely by the central bank — the so-called trim and median core rates — edged lower, averaging 5.15 per cent from an upwardly revised 5.25 per cent a month earlier. Economists were expecting a reading of 5.05 per cent.
Tuesday’s report shows rapid rate increases over the past ten months are starting to temper price gains, though inflation remains well above the central bank’s 2 per cent target. The data support the view that the end of one of central bank’s most aggressive tightening cycles is in sight, with Governor Tiff Macklem expected to deliver 25-basis-point hike next week before pausing.
The loonie strengthened about a fifth of a cent after the release to $1.34 per U.S. dollar at 8:35 a.m. in Ottawa. Bond yields ticked slightly higher.
While lower gasoline prices led to a large pullback in December’s headline inflation rate, slower price growth was offset by increases in mortgage interest costs, clothing and personal care supplies. Shelter was again among major contributors to price gains, with mortgage interest and rent up 18 per cent and 5.8 per cent from year ago, respectively.
Consumers paid 13.1 per cent less at gasoline pumps in December compared with a month earlier, also the largest monthly decline since April 2020, reflecting lower oil prices amid concerns over a slowing global economy and reduced demand after China’s surge in COVID cases.
Grocery prices also eased marginally. The cost of food purchased from stores rose 11 per cent from the previous year, compared with 11.4 per cent in November, with price growth hovering around 11 per cent for the last five months.
Easing price pressures were widespread across Canada, with all provinces posting slower year-over-year gains in December.