Statistics Canada says the end of the federal government’s tax holiday a year earlier pushed the annual pace of inflation up two ticks to 2.4 per cent in December.
A poll of economists heading into Monday’s data release had expected the annual inflation rate would hold steady at 2.2 per cent.
StatCan said Ottawa’s move to take GST off some items for two months starting mid-December in 2024 dropped prices for dining out, alcohol, children’s toys and more a year earlier, but those discounts fell out of the annual comparison and pushed the consumer price index higher to end the year.
That led to an 8.5 per cent annual increase in the price of restaurant meals, which StatCan said fueled the acceleration in the headline number. Some grocery items including potato chips and confectionary goods were also included in the tax holiday and saw annual price jumps in December, the agency said.
Overall, the cost of food bought from the grocery store rose five per cent annually, though StatCan said price levels were broadly unchanged month-to-month. Grocery store inflation has been accelerating in recent months, rising 4.7 per cent year-over-year in November.
The agency said the price of coffee was up more than 30 per cent in December, while the cost of fresh or frozen beef rose 16.8 per cent.
Offsetting December’s inflation hike was a 13.8 per cent drop in the cost of gasoline, StatCan said. The agency pointed to an oversupply of crude oil globally that drove down prices.
Andrew Grantham, senior economist at CIBC, said while the distortion from the "tax holiday" was expected, what caught forecasters off-guard was the jump in transportation costs last month.
While the cost of air transportation was marginally lower year-over-year, StatCan said airfare prices surged 34.5 per cent month-over-month – outpacing the previous year’s holiday price hike. The cost of travel tours also rose on a monthly basis, which StatCan attributed to higher prices for U.S. destinations.
The December inflation figures will be the Bank of Canada’s last look at price data before it makes its first interest rate decision of the year next week. The central bank held its benchmark interest rate steady at 2.25 per cent in December.
Grantham said that while the acceleration in headline inflation was unexpected, signs within the report that key core inflation metrics were moderating meant there was little cause for alarm.
"It was a little bit of a surprise when that number flashed up on the screens, but the more you dig into it, the less concerning it was that we saw that acceleration and that slight upside surprise today," he said.
Leslie Preston, senior economist at TD Bank, said in a note to clients Monday that underlying inflation appears to be holding above the central bank's two per cent target, "but it is getting a lot closer in recent months."
"Overall, December's data is consistent with our expectation for inflation to moderate to the bank's target over the next year ... as past inflation problem areas, like rents, continue to cool," Preston said.
BMO chief economist Doug Porter said in a note that progress on the core inflation front would not be enough to warrant additional rate cuts from the Bank of Canada.
"It would take a serious deterioration in the economy and some further signs of core inflation decelerating to again open the door for renewed policy easing — we're simply not there yet," he said.
The Bank of Canada also released updated quarterly surveys of businesses and consumers later in the morning Monday.
The business outlook survey suggested trade-related uncertainty and the broad economic effects of tariffs continued to weigh on confidence in the final quarter of 2025.
The Bank of Canada's separate survey of consumers suggests high prices and trade uncertainty are continuing to hound Canadians.
Consumers most frequently point to tariffs as the factor they believe is affecting inflation, though trade impacts were cited less often than in the third quarter surveys.
The Bank of Canada, meanwhile, said the pass-through from tariff-related costs is no longer putting upward pressure on firms' pricing decisions.
Picture Courtesy: THE CANADIAN PRESS/Chris Young
