Inflation ticks lower to 1.8% in December, thanks in part to GST tax break

Canada’s annual inflation rate fell to 1.8 per cent in December, thanks in large part to the federal government’s temporary tax break.

Statistics Canada’s consumer price index report on Tuesday said restaurant food purchases, and alcohol bought from stores contributed the most to the deceleration.

The federal government introduced a temporary pause on taxes to those items in mid-December, along with tobacco and cannabis products, clothing, and some toys, among others.

Without the tax break, Statistics Canada said the annual inflation rate would have risen to 2.3 per cent.

Growth in grocery prices also decelerated from the prior month, falling to 1.9 per cent year-over-year, from 2.6 per cent in November. Gas price inflation remained elevated at 3.5 per cent year-over-year.

Shelter costs ticked down slightly in December to 4.5 per cent, though remain elevated, while rent prices were also down year-over-year in December, falling to 7.1 per cent.

Attention now turns to the Bank of Canada, which is set to make an interest rate decision next week.

Some economists have called for another quarter-percentage point rate cut, following a half-point cut in December.

"We suspect that today's reading is just good enough to allow the Bank of Canada to trim next week, for risk management purposes," said BMO Capital Markets chief economist Doug Porter in a note to clients.

TD Economics also reiterated its expectation of a quarter-percentage point cut at "every other (rate) decision in 2025."