Inflation falls after GST tax holiday; underlying price pressures remain sticky
Canadian consumer prices fell in December by 0.4%, bringing the annual inflation rate down to 1.8% after Prime Minister Justin Trudeau’s government introduced a GST tax holiday.
The rate is down from 1.9% in November, and marks the fifth consecutive month that annual inflation has been at or below the Bank of Canada’s 2% target. While the temporary removal of the tax on a series of products such as alcohol, restaurant food and children’s clothing helped lower inflation, underlying price pressures remain elevated.
Three-month averages of so-called core inflation—a key metric of underlying inflation closely monitored by the Bank of Canada—have moved back above 3% over the past couple of months, a worrying sign that inflation may heat up again.
Still, the lower headline inflation number is expected to keep the Bank of Canada in rate cutting mode. Traders expect policymakers to lower borrowing costs again at a decision next Wednesday.
