The latest on inflation in Canada
Welcome to The Globe’s live blog for the release of December inflation numbers.
Canada’s annual inflation rate rose to 3.4 per cent in December, up from 3.1 per cent in November, Statistics Canada said Tuesday – matching financial analysts' expectations.
The Bank of Canada is broadly expected to continue to hold its key interest rate at five per cent at its next decision on Jan. 24. However, the timing of the first interest rate cut is expected to be driven by how fast inflation falls and how sharply the economy softens this year.
The January, 2024 inflation report will be released on February 20.
Key points:
- The latest inflation numbers
- Highlights from December's inflation report
- Calculate your personal inflation rate
- Use our inflation grocery calculator
Find updates from our reporters and columnists below.
11:25 a.m.
What’s next?
Bank of Canada Governor Tiff Macklem arrives for the annual meeting of federal, provincial, and territorial finance ministers in Toronto on Friday, December 15, 2023.Nathan Denette/The Canadian Press
The next big day on Canada’s economic calendar is Jan. 24, when the Bank of Canada makes its next interest-rate decision. The benchmark interest rate is unlikely to budge from its current 5 per cent at that time.
Still, the bank will be publishing its updated economic projections next week, including its timeline for getting inflation back to its 2-per-cent target. Analysts will be poring through those forecasts for signs of when the BoC will start to lower lending rates.
As of October, the bank said inflation would make its return to 2 per cent in 2025. However, Bank of Canada Governor Tiff Macklem said in December that inflation could get close to the mark by the end of 2024.
The next Consumer Price Index report will be released on Feb. 20. Given the results in Tuesday’s edition, analysts will keep a close eye on core measures of inflation, which are proving stubborn.
Meanwhile, the Labour Force Survey for January will be published on Feb. 9. The Canadian labour market is softening as higher interest rates weigh on economic activity. The unemployment rate – now at 5.8 per cent – has risen nearly a full percentage point from a record low, and many economists expect it to grind higher in the months to come.
10:50 a.m.
What does December inflation mean for the Bank of Canada?
A Bank of Canada sign is seen in Ottawa, Monday, May 25, 2020.Adrian Wyld/The Canadian Press
In December, Bank of Canada governor Tiff Macklem warned there could be turbulence ahead for inflation. The latest Consumer Price Index numbers confirm that prediction.
With the annual rate of inflation ticking back up to 3.4 per cent, there’s little reason for the Bank of Canada to change its tone at its rate announcement next Wednesday. It’s likely to hold its policy rate steady at 5 per cent on Jan. 24. But you can expect it to keep talking tough about the possibility of further rate hikes.
Central bank officials have said they want to make sure that inflation is on a sustainable path back to their 2-per-cent target before considering rate cuts. To determine this, they are paying close attention to core measures of inflation that filter out the most volatile price movements in the broader CPI, like food and gasoline. On this front, Tuesday’s numbers were a step in the wrong direction.
The CPI-median measure clocked in at an annual rate of 3.6 per cent, the same as in November. (The November number was revised upwards from 3.4 per cent.) Meanwhile, the CPI-trim measure rose two ticks to 3.7 per cent from 3.5 per cent in November. Both measures also accelerated on a three-month annualized basis.
After the data, financial markets backed off bets on a Bank of Canada rate cut in March. Before the CPI release, interest rate swap markets put the odds above 40 per cent. That fell to around 30 per cent after the inflation data, according to Refinitiv data.
Swap markets still see a roughly 75 per cent chance the bank cuts rates in April. Most Bay Street economists, by contrast, expect cuts closer to the middle of the year.
Alongside inflation data, the Bank of Canada has said it’s paying close attention to demand and supply across the economy, wage growth, corporate price-setting behaviour and inflation expectations. Recent data on these metrics has been a mixed bag, with GDP slowing and the labour market stagnating, while inflation expectations remain high and wages continue to grow quickly. Taken together, the bank is still looking for convincing evidence that it’s on the right path.
10:25 a.m.
Economists react to Tuesday’s inflation report
Here’s what economists are saying about today’s inflation report:
Royce Mendes, managing director and head of macro strategy at Desjardins Securities
The reacceleration in Canadian inflation is going to raise some eyebrows. While the increase in the annual rate of price growth to 3.4 per cent in December from 3.1 per cent in November was simply the result of base effects and in line with the consensus forecast, core measures of inflation were expected to have cooled further during the month. Alas, that was not the case. The Bank of Canada’s two core indicators both accelerated, with the average three-month annualized rate of the two rising to 3.6 per cent from an upwardly revised 2.9 per cent in the prior month.
As a result, the underlying pace of price pressures looks hotter than we anticipated. The only reason that headline inflation printed in line with the consensus forecast seems to be as a result of a few large price declines in categories such as cellular services. The reacceleration in the core trimmed mean measure actually looks quite broad based, with the three-month annualized rates of core-goods, core-services excluding shelter and core-shelter prices all moving higher in December.
The stickiness in these core measures of inflation comes as a disappointment to Canadians hoping to see enough progress today to open the door to rate cuts. Canadian [yields] are rising following the release, particularly at the shorter-end of the curve, as traders reassess some of their aggressive rate cut bets. That said, given the moderation seen in expectations for both growth and inflation according to yesterday’s consumer and business surveys from the Bank of Canada, we are sticking with our call that the central bank will begin lowering rates in April to keep the economy from falling into a deeper recession.
Stephen Brown, deputy chief North American economist, Capital Economics
The pick-up in underlying inflation pressures raises the risk that the Bank of Canada will need to keep interest rates higher for longer than markets are now pricing in, with the economy suffering further as a result.
At first glance, the more modest 0.2 per cent month-over-month seasonally adjusted rise in the CPI excluding food and energy, following the 0.4 per cent increase in November, looks encouraging. But that seems to have been entirely due to a normalization of travel tour prices after they surged in November, which pulled recreation, education and reading prices down by 1.3 per-cent month over month.
The most disappointing element of the CPI data is that the CPI-trim and CPI-median measures both rose by 0.4 per cent month over month, which caused the average three-month annualized rate to jump back up to 3.6 per cent, from 2.9 per cent, while the average annual rate also edged higher. As the bank pays more attention to those core measures than the CPI excluding food and energy, those larger increases mean the bank is likely to remain a hawkish tone at its meeting next week and reduce the chance of it cutting interest rates any time soon.
Leslie Preston, managing director and senior economist, TD Economics
If you are looking for data to signal a rate cut is imminent, this isn’t it. December’s inflation report underscores that the last mile of getting inflation all the way back to 2 per cent is the hardest. It took about a year for inflation to drop from its peak of 8 per cent to around 3 per cent, but over the past six months further headway has been halting. This leaves the Bank of Canada cautious as it considers when it will be appropriate to cut interest rates.
Despite December’s report, we expect inflation, and the economy, will have cooled sufficiently by the spring for the Bank of Canada to make its first interest rate cut in April. That said, inflation is unlikely to be quite at 2 per cent. As Governor Macklem pointed out in December, the BoC doesn’t need to see 2 per cent to begin normalizing monetary policy, but rather be confident it is getting there.
Douglas Porter, chief economist, BMO Capital Markets
While the higher headline was little surprise, and precisely mimicked the U.S. inflation experience in December, the slightly more unsettling news is the persistence of core in the mid-3s. That sticky theme was echoed in yesterday’s Business Outlook Survey, and suggests that the last mile (or kilometre) of the inflation fight may prove to be the most challenging — bringing underlying inflation sustainably back below 3 per cent. Given that wage trends are also stuck in the 4 per cent to 5 per cent range, and now even housing may be showing a pulse, suggests that the Bank of Canada will doggedly maintain a cautious stance at next week’s rate decision and Monetary Policy Report. We are comfortable with our call of a first rate cut at the June meeting, even as the market leans in earlier.
10:10 a.m.
Canadians are paying less at the pump, but lower gas prices may not last long
Gas prices are displayed in Carleton Place, Ont. on Tuesday, May 17, 2022.Sean Kilpatrick/The Canadian Press
Gasoline prices were up 1.4 per cent compared to December of 2022, but, counterintuitively, there’s good news for Canadians’ pocketbooks when it comes to the cost of filling up the tank.
Compared to November, in fact, Canadians were paying less on average at the pump in December, with prices dropping 4.4 per cent on a monthly basis. That was the fourth consecutive month of declines in the latter part of 2023.
Gas prices have recently emerged as one of the few sources of financial relief for Canadian consumers amid slowing but still stubbornly strong inflation. Whether that will continue to be the case, though, seems highly uncertain.
Oil prices have been particularly volatile lately, torn between opposing forces. On the one hand, keeping prices down – for now at least – are concerns about weak energy demand worldwide amid high interest rates and slow growth in China. High inventories of both oil and gasoline in the U.S. are also contributing to this trend.
On the other hand, though, energy markets are keeping a wary eye on the Middle East, amid concerns that the Israel-Hamas war is fuelling broader regional tensions. Last week, for example, oil prices briefly swung up after news of U.S.-led air strikes against Yemen’s Houthi rebels, who have been disrupting shipping in the Red Sea.
The Houthi movement, a Shia militant organization that has taken over swathes of Yemen and receives some support from Iran, has portrayed the attacks as a response to the war in Gaza. The strikes, which quickly resumed, are forcing a growing number of oil tankers to avoid key shipping lanes through the Red Sea out of security concerns.
Bottom line: Gasoline remains relatively cheap for now, but don’t bank on it.
9:50 a.m.
Inflation highlights: Prices for rent, groceries and travel
A for rent sign outside a home in Toronto on Tuesday July 12, 2022.Cole Burston/The Canadian Press
Here are some highlights from the December CPI report:
- Rents jumped 7.7 per cent in December on an annual basis, picking up from 7.4 per cent in November. Costs for rental units are one of the biggest sources of inflationary pressure in Canada at the moment. “Among other factors, a higher interest rate environment, which can create barriers to homeownership, put upward pressure on the index,” Statscan said in the release. Economists have also noted that Canada’s population surge – especially among temporary residents – is creating lots of demand for rental units amid already low vacancies.
- Core measures of inflation proved thorny. Excluding food and energy, the CPI rose at a three-month annualized rate of 3.8 per cent in December. While that was down from November, it’s still much higher than policymakers would prefer.
- Grocery prices rose 4.7 per cent in December, year over year, matching the pace in November. It’s a tougher situation at restaurants, where prices have risen by 5.6 per cent over the past year.
- Prices in the recreation category fell 3.4 per cent in December from November, the largest monthly drop on record, Bank of Montreal chief economist Doug Porter said in a report. Travel services prices tumbled by nearly 15 per cent, and for home entertainment equipment, costs dropped by 7.2 per cent. “While there is clearly seasonality here, the outsized declines hint strongly at softening discretionary spending,” Mr. Porter wrote.
9:35 a.m.
Analysis: Food inflation hurts the most because it’s inescapable
A store employee arranges the halal food section inside a Metro grocery store in Milton, Ont., on Friday, January 12, 2024.Nathan Denette/The Canadian Press
Forget, for a moment, the overall inflation rate in December of 3.4 per cent. It’s a disappointing number, given that it represents an increase from 3.1 per cent in the previous month, but never mind. The overall rate can be erratic. What has to concern every single Canadian above the age of 18 or so is the rate of food inflation.
The overall year-over-year increase in food inflation was 5 per cent last month. Isolate food purchased from stores and you get 4.7 per cent, the same increase in November. This is the inflation rate that hurts the most because it’s inescapable. All you can do is try to shop smarter and cut back. Who isn’t tired of doing that after three years of rising prices? Inflation started to move higher in 2021, peaked in 2022 and began to move lower in 2023. We are now into our fourth inflationary year.
Inflation won’t feel like it’s easing until the price of groceries stops lurching higher. But the data-based reality of inflation is important because it indicates the future direction of interest rates. We need inflation to break below the 3 per cent threshold and head toward 2 per cent in order for the Bank of Canada to feel comfortable about lowering interest rates.
Economists say we’re still months away from this happening. Even when it does, it seems likely that food inflation will continue to be a problem. The rising cost of food has consistently run ahead of the overall inflation rate, as has the cost of shelter. Inflation in the broad shelter category was up 6 per cent year over year, while rent alone jumped up 7.7 per cent.
The overall inflation rate is important because it sets the trend for interest rates, but it’s niche numbers like food and shelter that shape the impact of inflation on everyday people. For them, inflation is still raging. Let’s see what the next few months bring.
9:25 a.m.
A look at inflation, by province
9:10 a.m.
Markets react to the latest inflation data
Markets were taken a little off guard with the higher than expected core readings of inflation, with the Canadian dollar immediately rising to 74.30 cents US, up about a tenth of a cent and the two-year government of Canada bond yield bumping up an additional couple basis points. At 8:42 a.m. ET, Canada’s two-year bond yield was fetching 3.873 per cent, up about 9 basis points for the session and widening its spread against the equivalent U.S. note.
How economists and market bets for BoC rate cuts are reacting to Canada’s inflation data
Implied interest-rate probabilities in swaps markets saw modest moves as well, but nothing that meaningfully changes what traders see ahead for moves this year in the Bank of Canada overnight rate. Markets are pricing in about a 30 per cent chance of a cut in the BoC overnight rate at its March meeting, rising to 73 per cent odds by April. Prior to today’s inflation release, those probabilities stood at 40 per cent and 87 per cent, respectively.
Regardless, money markets remain convinced we’ll see the bank start cutting rates in the first half of this year, with 99 per cent odds of at least a quarter point cut by June. Nearly 125 basis points of cuts are currently priced into markets by the end of this year.
8:50 a.m.
The new inflation numbers
Canada’s inflation rate perked up in December, highlighting the challenge ahead as the Bank of Canada tries to wrestle consumer price growth back to 2 per cent.
On an annual basis, the Consumer Price Index rose 3.4 per cent in December, up from 3.1 per cent in November, Statistics Canada said Tuesday in a report. This result matched expectations on Bay Street.
The uptick was influenced by what economists refer to as base effects. Gasoline prices tumbled a year ago, creating an unflattering base for year-over-year comparisons.
Excluding gas, the CPI rose 3.5 per cent in December, year over year, down slightly from 3.6 per cent in November.
Still, Tuesday’s report showed some areas of concern. The Bank of Canada’s preferred measures of core inflation – which strip out volatile movements in the CPI – ticked higher in annual terms.
“The stickiness in these core measures of inflation comes as a disappointment to Canadians hoping to see enough progress today to open the door to rate cuts,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a client note.
There was a similar trend for shelter prices, which rose 6 per cent in December from a year earlier – a touch hotter than the 5.9-per-cent pace in November.
In its latest projection, which was published in October, the Bank of Canada said it expected inflation to stick around 3.5 per cent until the middle of this year, before easing to roughly 2.5 per cent in the second half of 2024.
The central bank will update its economic projections on Jan. 24 alongside its next interest-rate decision.
8:30 a.m.
Canada’s inflation rate ticks up to 3.4% in December: Statscan
Canada’s inflation rate perked up in December as expected. The Consumer Price Index rose at an annual rate of 3.4 per cent last month, up from 3.1 per cent in November, Statistics Canada said Tuesday in a report. This result matched expectations on Bay Street.
8 a.m.
Bank of Canada surveys show weak business environment, lower inflation expectations
Bank of Canada Governor Tiff Macklem takes part in a news conference in Ottawa, Ontario on October 25, 2023.PATRICK DOYLE/Reuters
High interest rates are bringing down inflation expectations and slowing the pace that businesses are raising prices, while also creating considerable financial hardship for households, according to a pair of Bank of Canada surveys published Monday.
The central bank’s Business Outlook Survey for the fourth quarter of 2023 found Canadian companies are experiencing slowdowns in sales and increased competition. As a result, fewer businesses are planning larger-than-normal price increases in the coming year.
A separate survey of consumers found that Canadians are growing more pessimistic about the economy and pulling back on spending.
Taken together, the quarterly surveys reinforce the view that tight monetary policy is acting as a brake on the economy and reducing inflationary pressures. That supports market expectations that the central bank will hold interest rates steady at its next rate announcement on Jan. 24, and that it will begin lowering rates in the coming quarters.
Read the full piece on the Bank of Canada surveys.
7:30 a.m.
Market expectations ahead of today’s inflation report release
Canadian investors will get December inflation data before the start of trading. Economists are expecting the annual rate of inflation to edge up to 3.4 per cent in December, from 3.1 per cent a month earlier.
Before the Bell: What every Canadian investor needs to know today
The increase is expected to be partly the result of a smaller decrease in gasoline prices in December, compared with the same month a year earlier.
7 a.m.
December inflation report to be released today
Canada’s next inflation report is likely to show a step in the wrong direction. Financial analysts on Bay Street expect that the annual pace of consumer price growth hit 3.4 per cent in December, up from 3.1 per cent in November.
It’s not necessarily a cause for alarm, however. The annual inflation rate will be heavily influenced by what economists refer to as base-year effects. Consumer prices fell sharply between November and December of 2022, creating an unflattering base for year-over-year comparisons.
“Despite the acceleration, this is likely just a temporary increase, as there are more favourable (though not all easy) base effects in the months ahead,” Bank of Montreal economists said in a research note.
As usual, analysts will closely look at core measures of inflation – which strip out volatile components of price growth – for signs of progress. They expect to see a slight easing of inflationary pressure on this front in December.
Bank of Canada officials have repeatedly said that bringing inflation back to their 2-per-cent target would not be a linear journey. In its latest projections, the BoC said that inflation should ebb to roughly 2.5 per cent in the second half of this year, before returning to 2 per cent in 2025.
The central bank will release its next interest-rate decision on Jan. 24 and issue new economic projections. The bank’s benchmark interest rate is 5 per cent – the highest since 2001.
Given the progress in curbing inflation, economists and investors expect the Bank of Canada will start to lower its overnight lending rate by around the middle of the year.