By Robb M. Stewart


OTTAWA--Inflation in Canada quickened in the final month of last year, pressured by a tough year-ago comparison, though underlying measures indicate price pressures are easing.

The consumer-price index rose 2.4% from a year earlier in December, Statistics Canada said Monday. That was hotter than the 2.2% economists expected the index to hold steady at.

The acceleration was driven by a two-month federal tax-pause on purchases that began mid-December 2024. That put upward pressure on year-over-year price changes for a range of goods, including restaurant food, alcohol, toys, kids' clothing and some items in the grocery basket such as potato chips.

The latest reading puts the pace of inflation in the final quarter of 2025 slightly ahead of the 2% projected by the Bank of Canada, though the distortion of the tax holiday the year before suggests central bank officials are likely to look through the headline figure. Inflation has been running near the bank's 2% target for more than a year, though underlying measures have proven stickier.

Traditional core inflation excluding volatile food and energy costs edged up 0.1 percentage point to 2.5% in December.

However, stripping out the effect of tax changes, overall inflation for the month cooled by 0.3 percentage point to 2.5% annually. And the trimmed mean and weighted median measures of underlying inflation preferred by the Bank of Canada decelerated sharply, averaging 2.6% compared with 2.85% in November.

"Headline inflation may have been firmer than expected in December but softness in measures such as CPI-trim and median suggest that wasn't due to widespread inflationary pressures," said Andrew Grantham, senior economist at CIBC Capital Markets, who estimates underlying inflation is running close to the 2.2% six-month annualized average of core measures.

Most economists suggest that isn't enough to justify lingering speculation the central bank may be forced to raise interest rates before the end of the year. Most anticipate policymakers will leave rates steady through 2026, and certainly won't opt for another cut when they meet next week. Canadian government bond yields were little changed following the data, supporting the view market expectations haven't shifted.

Higher restaurant prices were the largest contributor to the acceleration in inflation last month. Prices for food bought at restaurants climbed 8.5%, while alcoholic drinks served at licensed establishments increased 6.5%.

Canadians also paid 7.5% more than a year earlier for toys, games and hobby supplies, and there was an acceleration in prices for kids' clothing.

Grocery prices continued an upward trend, rising 5.0% compared with a year prior, with coffee and beef again the biggest sources of grocery-price pressure for households. Economists expect rising food prices will continue to raise concerns about affordability, though they say there is little the central bank can do as they are being driven by global commodity price trends and reduced cattle inventories.

The cost of gasoline, meanwhile, fell 13.8% after a 7.8% slide in prices the month before. That came as crude oil prices declined to the lowest point in more than four years, amid ongoing worries about an oversupplied global market, and also follows the end last April of the federal government's consumer carbon levy.

Bank of Canada officials have signaled further rate cuts are unlikely following a string of moves lower over a roughly 16-month stretch, projecting inflation is likely to remain near target while the economy manages only modest growth through this year. The bank's quarterly business survey, released Monday, showed inflation expectations remain anchored within a 1% to 3% window, with the share of firms expecting significant increases in their input and selling prices falling to some of the lowest levels in a decade.

"As long as the economic backdrop shows further signs of improvement, and inflation remains at or above 2% target rates, there is little reason for the Bank of Canada to lower interest rates further," Nathan Janzen, assistant chief economist at Royal Bank of Canada, said.


Write to Robb M. Stewart at robb.stewart@wsj.com


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