financialpost Chapter 22

Canada’s Inflation Rate Overview

• Current Rate: Canada’s annual inflation rate decreased to 1.8% in December from 1.9% in November.

• Government Intervention: The decrease is attributed to a temporary GST/HST break from the federal government, aimed at reducing price pressures.

• Publication: Information released by Statistics Canada on January 21, 2025.

Impact of the GST/HST Tax Break

• Implementation Date: Tax break introduced on December 14.

• Affected Sectors: The tax exemption had a significant effect on prices:

  • Food and Beverages: Costs for food purchased from restaurants dropped by 1.6% year-over-year (first decline in history).

  • Children’s Toys, Clothing, and Footwear: Noted reductions in prices due to tax break.

• Expert Insight: Andrew Grantham (CIBC) indicated that approximately 10% of the inflation basket was influenced by this tax break.

December Pricing Trends

• Decline in Prices:

  • Food from Restaurants: Recorded a historical decline of 1.6%.

  • Alcoholic Beverages: Prices dropped by 1.3% year-over-year; major monthly decline of 4.1% recorded.

• Core Inflation Rates: Excluding the tax break impact, the consumer price index (CPI) rose by 2.3% in December.

Economic Considerations

• Bank of Canada: Anticipated a cooling in inflation due to the temporary tax break, monitored closely as the tax is set to end in mid-February.

• Interest Rate Decisions: January inflation data is critical ahead of the January 29 interest rate decision. Economists predict a 25-basis-point cut influenced by tariff threats from the USA.

Ongoing Economic Challenges

• Trade Uncertainty: U.S. President Donald Trump suggested potential tariffs against Canada could further complicate economic conditions.

• Gasoline Prices: Increased by 3.5% in December after a decline previously, impacting overall consumer perception.

• Shelter Prices: Increased at a slower rate of 4.5% year-over-year compared to 4.6% in November.

Future Outlook

• Core Measures: Core inflation measures slightly declined, with CPI-median increasing to 2.4% and CPI-trim at 2.5% in December.

• Economists' Perspectives: Future readings are expected to rise, indicating a gradual approach to interest rate cuts by the Bank of Canada.