Canada Inflation Rises to 2.4% in December, but Core Pressures Continue to Ease

Consumer prices in Canada accelerated more than expected in December, rising 2.4% year on year, driven largely by base effects linked to last year’s temporary sales tax break. However, underlying inflation pressures continued to cool, with the Bank of Canada’s preferred core measures easing for a third consecutive month.

Economists surveyed by Reuters had expected inflation to remain unchanged at November’s 2.2% pace.

On a monthly basis, the consumer price index fell 0.2%, according to Statistics Canada. While this marked a decline, it was smaller than market expectations for a 0.3% drop.

The central bank’s closely watched core indicators both moved lower and reached their weakest levels since December 2024. CPI median, which represents the midpoint of price changes across the economy, cooled to 2.5% from 2.8% in November. CPI trim, which excludes the most extreme price movements, eased to 2.7% from 2.9%.

The continued deceleration in core inflation is likely to reassure policymakers after the Bank of Canada kept its benchmark rate unchanged at 2.25% in December, describing it as broadly appropriate for keeping inflation near the 2% target. Money markets now expect rates to remain on hold through 2026.

The jump in headline inflation was largely technical. In December 2024, a temporary sales tax holiday introduced by the previous Liberal government lowered prices for certain food and children’s items. With that base now dropping out of the annual comparison, inflation appeared to accelerate.

Restaurant prices, one of the categories affected by last year’s tax break, were the single largest contributor to the increase in the annual rate in December 2025.

Offsetting some of the upward pressure was a sharp decline in gasoline prices, which fell 13.8% year on year, compared with a 7.8% drop in November.

Grocery prices were unchanged on the month but rose 5% from a year earlier. Excluding volatile food and energy components, inflation stood at 2.5% in December.

Services inflation picked up, accelerating to 3.3% from 2.8% in November, while goods inflation eased slightly to 1.2% from 1.5%.

On an annual average basis, consumer prices increased 2.1% in 2025, following a 2.4% rise in 2024, reinforcing the view that inflation in Canada is gradually converging toward the central bank’s target.