The December Shopper Worth Index (CPI) report revealed a continued slowdown in inflation, with the headline fee reaching its lowest level since February 2021.

The drop was additionally aided by the federal authorities’s short-term GST/HST vacation that began on December 14, with the exemption persevering with for the total month of January.

The Financial institution of Canada’s most popular core inflation measures continued to ease on an annual foundation in December however elevated in comparison with November. Consequently, their three-month averages rose and stay above the Financial institution’s impartial goal vary.

December inflation report highlights

What economists are saying

Following the discharge of the inflation report, right here’s what a few of Canada’s prime economists needed to say:

On core inflation measures:

• Scotiabank: “What issues right here is that Canadian core inflation stays scorching and continues to place upward strain on the BoC’s 2% inflation goal. That’s true by way of the Financial institution of Canada’s most popular core inflation readings and it’s additionally true for conventional core CPI that solely excludes meals and power that climbed by probably the most since Might.”

On the GST/HST vacation

• Nationwide Financial institution (Matthieu Arseneau & Ethan Currie): “Excluding oblique taxes, which fell on account of the GST/HST vacation, inflation was 0.06%, the largest improve in December since 2007 (0.6% m/m after seasonal adjustment, largest in 16 months). Core inflation measures, which exclude the impression of oblique taxes, rose in December additionally at charges too excessive for the central financial institution’s goal.”
• CIBC (Andrew Grantham): “Canada’s inflation information is simply going to get more durable to dissect in January, with the total month impression from the GST/HST tax break taking maintain.”
• Desjardins (Randall Bartlett): “Whereas the additional deceleration in headline CPI inflation was a optimistic in December, that is muddied by the GST/HST vacation that began within the month. January and February CPI readings can be equally distorted … Certainly, the drag from decrease gross sales taxes will offset a number of the base results that have been anticipated to push inflation materially increased in Q1 2025, thereby holding inflation at first of the yr near the Financial institution’s 2% goal.”

On mortgage curiosity prices:

• RBC (Nathan Janzen & Abbey Xu): “Progress in mortgage curiosity prices continued to sluggish as earlier declines in rates of interest proceed to filter via family efficient borrowing prices, however nonetheless account for a disproportionate share of complete year-over-year CPI development (~30% as of December).”

On the impression on subsequent week’s Financial institution of Canada’s fee determination:

• TD (Leslie Preston): “…core inflation pressures have picked up over the previous three months, suggesting that inflation readings are prone to transfer up a bit within the months forward. This can give the Financial institution of Canada motive to undertake a extra gradual tempo of rate of interest cuts this yr. We anticipate 1 / 4 level lower at each different determination in 2025.”
• BMO (Douglas Porter): “We imagine that the heavy overhang of commerce uncertainty—potential U.S. tariffs—overrides virtually all else. Consequently, we suspect that as we speak’s studying is simply ok to permit the Financial institution of Canada to trim subsequent week, for danger administration functions.”
• CIBC: “via the volatility it nonetheless seems that core worth pressures are low sufficient, and the financial system weak sufficient, to justify a 25bp discount in rates of interest from the Financial institution of Canada subsequent week”
• Scotiabank (Derek Holt): “I don’t imagine that the BoC ought to lower however they could properly take the simple route in what’s priced…The BoC is already at or very near a impartial fee in contrast to the Federal Reserve…Subsequently, what’s the frenzy to chop after 175bps of cuts so far? I do know one factor for certain: I wouldn’t lower at this level whereas leaving all choices open going ahead.”
• Desjardins: “With the inauguration of President Donald Trump yesterday, draw back dangers to the financial system abound, not least from the specter of a 25% tariff being launched on February 1. This financial uncertainty reinforces our name the following fee lower in January is prone to be a modest 25 foundation factors, and that subsequent fee reductions needs to be of an identical magnitude.”
• Nationwide Financial institution: “…we imagine that the Financial institution of Canada ought to proceed to ease financial coverage by reducing its coverage fee by 25 foundation factors subsequent week. This may give us a bit extra hope of seeing financial development above potential assuming Canada is ready to keep away from a tariff conflict with our largest buying and selling accomplice.”

Present coverage fee & bond yield forecasts from the Huge 6 banks

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Final modified: January 21, 2025