December 2024 CPI: Prices slow to 2.4% in 2024 as HST holiday provides temporary relief.

“The Bank of Canada might be rethinking its bias toward rate cuts as the threat of tariffs looms closer. Central banks aren’t immune to uncertainty, and while there’s still room to maneuver with moderating inflation, there are signs of activity picking up. Businesses are reporting stronger sales and investment intentions, helped by the easing in financial conditions.

That said, a weaker Canadian dollar could amplify the impact of any new tariffs on the Canada side by driving up import costs. It’s a tough spot for the Bank, with a 25bps move on the table at next week’s meeting. They might opt for caution, but if they do, a larger move in March could be on the cards—they’re certainly not strangers to bold action.”

Headlines

• Canada’s headline inflation decelerated to 1.8% in December, slightly below consensus (1.9%) on a year-over-year basis. Monthly seasonally adjusted prices grew 0.2%, though prices unadjusted declined 0.4%. The GST/HST holiday covering food at restaurants, clothing and footwear, and alcohol had some impact on prices.
• Annual 2024 prices grew 2.4%, down from 3.9% in 2023. Shelter was the largest contributor to prices, growing 5.7%.
• The Bank of Canada’s core measures (Trim and Median) dropped slightly at 2.5% year-over-year. Short-run core measures (3-month change annualized) grew 3.5%, showing signs of building pressures. Muted price growth in some areas of the basket are moderating or returning to growth.

CPI components

• Shelter prices continue to support overall prices. Growth in shelter costs slowed to 4.4% in December, down from 4.6%. Mortgage interest costs and rent prices improved once again, slowing to 11.4% and 7% respectively.
• Food prices slowed in part due to the temporary tax break. In December, food inflation rose only 0.6%, with restaurant prices declining 1.6% year-over-year. Grocery store prices also saw some reprieve, though accelerating 1.9%, down from 2.5% in November.
• Gasoline prices rose 5.4% on base-year effects from December 2023. Prices declined 0.6% on a monthly basis but rose 5.4% annually.
• Services inflation rose 3.5% in December with health care and personal care driving the category higher. Travel services rose 8% and traveller accommodations increased 13.6% in December as Taylor Swift concerts increased demand for hotels in the last two months of 2024.
• Goods inflation was down again in December, with semi-durable goods declining 3.1%. Clothing and footwear prices declined nearly 3% on a monthly basis. Children’s clothing and footwear, covered in the GST/HST break declined 5.7% and 7.4% respectively.

Provincial inflation

Inflation accelerated in British Columbia, Saskatchewan, Manitoba, and Quebec. Prices slowed in all other provinces with Newfoundland and Labrador experiencing the slowest price growth.

Implications

• December CPI: Inflation came in below the Bank of Canada’s October forecast of 2.3% year-over-year. While inflation expectations rose in the Bank’s latest surveys, current perceptions of inflation continue to decline. Short-term momentum indicators suggest inflation could rise, but price pressures are limited, with 64% of the CPI basket growing at or below 2%.
• Federal GST/HST Holiday: Introduced on December 14, this policy affects 10% of the CPI basket, according to Statistics Canada. Its impact will be more apparent in January 2025 data, reflecting a full month of coverage. The holiday is expected to lower prices by up to 1.1%, but the Bank is likely to look past this temporary effect.
• Monetary Policy Outlook: Markets increased bets of a 25-basis-point rate cut at the Bank of Canada’s January 29 meeting. We believe that rates will approach a neutral level of around 2% by spring 2025. However, the threat of tariffs set to take effect on February 1, could prompt the Bank to pause and move from its cutting bias. If needed, it may take bolder action, such as a 50-basis-point move, which they’ve shown willingness to do.

Charts and tables

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab