Canada’s inflation rate fell to 1.8% in December, with prices declining during GST break

Canada’s Inflation Rate Drops to 1.8% in December

Canada’s inflation rate fell to 1.8 per cent in December, according to Statistics Canada. This was lower than analyst expectations and below the previous month’s rate of 1.9 per cent. The decrease in inflation was attributed to the federal government’s GST holiday, which brought down prices for restaurant food, alcohol, and children’s clothing.

Excluding food, December’s inflation rate was 2.1 per cent. Prices for alcoholic beverages purchased from stores declined by 1.3 per cent in December, compared to a 1.9 per cent increase in November. Similarly, food purchased at restaurants dropped by 1.6 per cent in December, down from a 3.4 per cent rise the previous month.

The Consumer Price Index includes all taxes paid by consumers, so any tax breaks will lower the prices recorded by Statistics Canada. The sales tax break, affecting a tenth of the CPI basket, will continue until mid-February. January will see a full month of exemption compared to 18 days in December.

Despite the overall decrease in inflation, housing prices still rose by 4.5 per cent in December, albeit at a slightly slower pace than the previous month’s 4.6 per cent rate. Gas prices also increased by 3.5 per cent due to a base-year effect.

The Bank of Canada’s target inflation rate has been at or below two per cent since August, allowing the bank to reduce its key policy rate by a total of 175 basis points from June to 3.25 per cent. A further drop in inflation in December could lead to another rate cut, although Bank of Canada Governor Tiff Macklem has indicated that any future cuts would be gradual.

In addition to the overall inflation rate, the central bank’s preferred measures of core inflation, CPI-median, and CPI-trim also experienced slight declines in December.