Canada’s inflation surges to 3.4% in December

Canada inflation surges to 3.4% in December

In a telling sign that the battle against inflation is far from over, consumer prices in Canada rebounded in the final month of the past year, hinting at persistent economic challenges. According to the government statistics agency’s report on Tuesday, the consumer-price index experienced a 0.3% decline in November compared to the previous month but surged by 3.4% from the preceding year. This comes after November’s 0.1% monthly gain, showcasing an acceleration following the month’s stable 3.1% annual inflation.

Global Trends and Core Metrics

The annual rebound in inflation was not unexpected. It mirrored trends observed in the U.S. and the eurozone bloc during the same period. Despite this, expectations regarding central banks potentially cutting interest rates this year remain intact.

The core prices, excluding volatile food and energy items, saw a 3.4% increase in December from the previous year. This indicates a slight moderation compared to the 3.5% annual rise reported in the prior month, according to the Wall Street Journal report.

Bank of Canada’s Concerns and Key Indicators

The Bank of Canada may find little comfort in the acceleration of two critical measures of annual core inflation it closely monitors. The weighted median CPI rose by an average of 3.65% in December from a year earlier. This is compared to the 3.55% growth in November. The central bank closely monitors these indicators for signs of inflation on a sustainable path toward 2%. A crucial threshold before considering rate cuts.

Fueling Headline Inflation: Gas Prices and Consumer Expenses

The base-year effect of gasoline prices primarily drove the December rebound in headline inflation, according to a Bloomberg report. Pump prices decreased monthly for the fourth consecutive month. However, they increased by 1.4% compared to December 2022 when gasoline costs were notably lower. Excluding gas, headline inflation slowed to 3.5% for the month from 3.6% in November, still exceeding the central bank’s target.

Canadians continued to grapple with elevated rent prices in most provinces, influenced by the higher interest rate environment. Airfare prices also surged from the previous month, falling less than at the end of 2022 on an annual basis. Additionally, consumers faced increased prices for passenger vehicles, partly due to the availability of new 2024 models.

Economic Forecast and Consumer Behavior

Economists expect inflation to continue receding as Canada experiences stagnation in growth over the upcoming quarters. The Bank of Canada envisions 2024 as a transition year for the economy. The anticipated effects of past interest rate increases are likely to restrain spending and subdue economic growth.

Despite the overall decelerating trend, all items maintained year-over-year price growth between 3% and 4% for the last six months of 2023. The data agency reported that it observed price increases in every major component it tracks on an annual basis, with transportation experiencing the most significant slowdown due to lower gasoline prices. Additionally, deceleration was noted in food and shelter.

Bank’s Projections and Consumer Sentiments

The central bank, scheduled to update its economic projections next week, recently projected that inflation would persist around 3.5% until the middle of the year. It is anticipated to only return to the target in 2025. The Bank of Canada’s survey shows households adapting to high inflation, adjusting behaviors amid economic changes and rising prices. However, expectations for inflation remain persistently high for services like rent. This may impede the return of overall inflation expectations to pre-COVID-19 pandemic levels. Bank concerns: Last month’s rebound in existing-home sales and an uptick in average wage growth in December are notable economic indicators.

Annual Statistics and Economic Realities

On an annual average basis, the Consumer Price Index rose by 3.9% for the year, a notable cooling compared to the 40-year high increase of 6.8% in 2022. Exceeding the 2021 average by 3.4% (excluding 2022 anomaly), this figure marked the largest annual increase since 1991. The data agency’s comprehensive report suggests that while there’s a decelerating trend, inflation remains a persistent challenge for the Canadian economy.

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