OTTAWA, Jan 19 (Reuters) – In December, Canada experienced a notable rise in consumer prices, increasing by 2.4%, surpassing expectations. This uptick was largely influenced by the base-year effect stemming from last year’s temporary sales tax break. However, core inflation measures, which are closely monitored, eased for the third month in a row, as indicated by recent data.
Analysts surveyed by Reuters had anticipated that inflation would remain steady at November’s rate of 2.2%.
On a monthly basis, the consumer price index saw a decline of 0.2%, according to Statistics Canada. This drop was less than the market’s expectations, which estimated a 0.3% decrease.
The Bank of Canada’s preferred indicators for core inflation, known as CPI-median and CPI-trim, continued their downward trend, reaching their lowest points since December 2024. The CPI-median, which represents the middle value of price changes, fell to 2.5% from 2.8% in November, while CPI-trim, which excludes extreme price fluctuations, decreased to 2.7% from 2.9%.
This moderation in core prices may provide reassurance for the Bank of Canada, which maintained its key policy interest rate at 2.25% in December, indicating that this level was appropriate to keep inflation near its target of 2%. Market expectations suggest that rates will remain unchanged through 2026.
The increase in overall inflation for December was primarily driven by a temporary sales tax exemption on select food items and children’s products, introduced by the previous Liberal government under Justin Trudeau during the same period in December 2024.
Among the sectors impacted by this tax holiday, restaurant prices contributed significantly to the acceleration in the annual inflation rate observed in December 2025.
Countering the rise in annual inflation was a year-over-year decline in gasoline prices, which dropped by 13.8% in December, following a 7.8% decline in November.
Grocery prices remained stable month-over-month, yet recorded a 5% increase year-over-year.
When volatile food and energy prices are excluded, inflation rose by 2.5% for the month.
In December, the inflation rate for services increased to 3.3%, up from 2.8% in November, while prices for goods rose by 1.2%, slightly down from 1.5% in the previous month.
On an annual average, prices rose by 2.1% last year, following a 2.4% increase in 2024.
Reporting by Ismail Shakil; Editing by Dale Smith
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