Inflation rose to 4.8%, in line with analyst expectations and the highest print since it reached 5.5% in September 1991, Statistics Canada said. It was the ninth consecutive month in which headline inflation topped the Bank of Canada's 1% to 3% control range.
Core inflation measures all rose, with the closely watched CPI common measure near a 10-year high at 2.1%.
That could fuel bets the central bank will start hiking interest rates next week, despite uncertainty around the impact of the Omicron coronavirus variant.
"We have core inflation getting to the upper end of the (Bank of Canada) target range and I think that's going to spook them," said Derek Holt, vice president of capital markets economics at Scotiabank.
"The worst thing they can do during the pandemic is to show they are not serious about containing cost of living pressures."
The Bank of Canada's benchmark rate has been at a record low 0.25% since the pandemic took hold in March 2020. It previously signaled it could tighten as early as April, but money markets see a roughly 70% chance of a hike on Jan. 26. [BOCWATCH]
Consumer price gains in December were driven by higher prices for shelter, food and vehicles. Shelter, which includes the cost of maintaining and replacing a home, posted its largest gain since July 2008, Statscan said.
Separately, Canadian home price gains accelerated in December, as buyers scrambled to act before anticipated rate hikes and re-sale supply remained constrained, Teranet data showed on Wednesday.
Analysts said inflation could increase in the coming months, before starting to decelerate later in the year.
"A re-acceleration in energy prices, transportation issues impacting food costs and a strengthening once again in monthly house price gains suggest that we could grind a little higher still," Andrew Grantham, a senior economist at CIBC Capital Markets, said in a note.
The Canadian dollar was trading 0.3% higher at 1.2477 to the greenback, or 80.15 U.S. cents, after touching its strongest level in nearly one week at 1.2451.
(Additional reporting by David Ljunggren and Steve Scherer in Ottawa and Fergal Smith in Toronto; Editing by Andrew Heavens, Bernadette Baum, Barbara Lewis and Jonathan Oatis)
By Julie Gordon