Canada Inflation Ticks Up to 2.4% on Base Effects as Core Eases

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(Bloomberg) — Inflation accelerated in Canada by more than expected as a federal tax holiday at the end of 2024 pushed yearly price comparisons higher, offsetting falling gasoline costs.

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Headline inflation quickened to 2.4% in December, Statistics Canada data showed Monday. That’s above the median projection in a Bloomberg survey of economists, who were expecting yearly price pressures to stay at 2.2%, where they were in November.

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On a monthly basis, the consumer price index fell 0.2%, less than economists’ expectations for a 0.3% decrease.

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Core measures of inflation — which strip out more volatile price changes — broadly eased. The Bank of Canada’s trim and median gauges decelerated to a 2.6% yearly clip, from 2.9% previously. On a three-month moving annualized basis, those measures slowed to 1.7%, from 2.3% in November.

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The faster-than-expected acceleration in headline inflation was driven largely by base effects. In December 2024, the federal government temporarily made various products, including restaurant food, toys and some alcoholic beverages exempt from a consumer goods tax.

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“This resulted in monthly declines for the exempt goods and services, which have now fallen out of the year-over-year movement,” Statistics Canada said in the release.

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That made higher restaurant prices the largest contributor to the acceleration in the yearly change in the consumer price index, the agency said, rising 8.5%, up from 3.3% in November. That was the biggest increase since 1991, when the GST sales tax was first implemented.

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Broader food prices rose 6.2% from a year earlier, the most since 2023. Gasoline prices were down 13.8% from the previous year.

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Smaller yearly declines in air transportation and travel tours also pushed up the headline inflation rate.

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The report showed major easing in core inflation pressures. The breadth of inflationary pressures widened, with about 46% of items in the consumer price index rising above a 3% yearly pace, from 44% previous.

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Excluding food and energy, prices rose 2.5% from a year earlier, up from 2.4% in November.

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Combined, the report shows both headline and core inflation still stuck above the central bank’s 2% target.

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Bank of Canada officials led by Governor Tiff Macklem held borrowing costs at 2.25% last month, saying their ability to help the economy was limited by the potential for higher inflation stemming from the US trade dispute, and that interest rates were at about the right level.

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The central bank is expected to remain on hold for most of 2026, and rate hikes are priced toward the end of the year.

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—With assistance from Mario Baker Ramirez.

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