December inflation ticks higher year over year
Canada’s annual inflation rate rose to 2.4 percent in December, up from 2.2 percent in November, according to Statistics Canada. The increase reflects the fading impact of a temporary federal GST break introduced in December 2024, which had lowered prices for part of the previous year.
The tax cut lasted two months and continued to influence year-over-year comparisons through much of 2025. With the measure now fully out of the annual calculation, price growth accelerated slightly at the end of the year.
Energy masks stronger underlying price pressures
Lower gasoline prices helped offset inflationary pressures in December. When energy is excluded, inflation climbed to three percent, up from 2.6 percent in November. The Bank of Canada focuses closely on core inflation measures that remove volatile components such as fuel prices and tax-related effects.
Two of the Bank’s preferred core inflation indicators declined in December, suggesting that underlying price pressures may be stabilizing despite the higher headline number.
BMO chief economist Douglas Porter said most major inflation measures are now clustering near 2.5 percent, aligning with the central bank’s assessment of underlying inflation trends.
Travel costs fall while groceries remain elevated
Prices for travel tours dropped 3.2 percent compared with December of the previous year, while air transportation costs declined 0.8 percent. Transportation prices typically rise during the holiday season, but month-over-month increases in December were larger than usual.
Grocery prices continued to weigh on household budgets. While monthly growth was unchanged, grocery prices rose five percent year over year. Coffee and fresh or frozen beef were major contributors to food inflation.
Bank of Canada unlikely to rush further rate cuts
Despite softer core inflation data, economists say the December report does not provide sufficient evidence for additional near-term interest rate cuts. According to Porter, further easing would require a significant economic slowdown and clearer signs of declining core inflation.
Annual inflation slows but cost pressures persist
Statistics Canada also released its annual inflation summary for 2025. Inflation averaged 2.1 percent over the year, down from 2.4 percent in 2024 and the lowest annual average since 2020. However, consumer prices are still nearly 20 percent higher than five years ago.
Service prices rose more slowly, helped by reduced mortgage interest costs following Bank of Canada rate cuts. Shelter price growth, including rent, also moderated.
Goods inflation accelerated in 2025, driven by higher vehicle prices and faster grocery inflation. Meat prices rose sharply, particularly beef, due to historically low cattle inventories. Weather disruptions and US tariffs contributed to higher coffee, cocoa and sweets prices.
Restaurant prices increased 2.6 percent over the year, slightly below the pace recorded in 2024.