Inflation slowly deflating
On Tuesday, January 17th, Statistics Canada released data that suggests the Bank of Canada may soon pause its aggressive campaign of interest-rate hikes. The consumer price index rose 6.3% from a year ago, slower than the 6.4% gain expected in a Bloomberg survey of economists and down from 6.8% in November. On a monthly basis, the index fell 0.6% in December, the biggest monthly drop since April 2020, exceeding forecasts for a 0.5% drop.
Two key yearly measures tracked closely by the central bank, the so-called trim and median core rates, edged lower, averaging 5.15% from an upwardly revised 5.25% a month earlier. Economists were expecting a reading of 5.05%.
Tuesday’s report shows that the rapid rate increases over the past ten months are starting to temper price gains, though inflation remains well above the central bank’s 2% target. The data support the view that the end of one of the central bank’s most aggressive tightening cycles is in sight, with Governor Tiff Macklem expected to deliver 25-basis-point hike next week before pausing.
While lower gasoline prices led to a large pullback in December’s headline inflation rate, slower price growth was offset by increases in mortgage interest costs, clothing and personal care supplies. Shelter was again among major contributors to price gains, with mortgage interest and rent up 18% and 5.8% from a year ago, respectively.
Consumers paid 13.1% less at gasoline pumps in December compared with a month earlier, also the largest monthly decline since April 2020, reflecting lower oil prices amid concerns over a slowing global economy and reduced demand after China’s surge in Covid cases.
Grocery prices also eased marginally. The cost of food purchased from stores rose 11% from the previous year, compared with 11.4% in November, with price growth hovering around 11% for the last five months.
Easing price pressures were widespread across Canada, with all provinces posting slower year-over-year gains in December.