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Special Report

Canada Inflation Research Brief

January 2024

Inflation Inches Up Amid Base-Year Effects;
Central Bank’s Next Move Still Likely a Rate Cut

Inflation remains sticky. Headline inflation matched market expectations in December with a reading of 3.4 per cent, up from 3.1 per cent witnessed in November. The headline acceleration was solely a result of a base-year effect where gasoline prices fell more on a monthly basis in December 2022 than they did in December 2023. When excluding gasoline, inflation slowed from 3.6 per cent in November to 3.5 per cent in December. On a monthly basis, headline CPI fell 0.3 per cent as lower month-over-month price decreases in travel tours and gasoline contributed to this decline. Regarding the Bank of Canada’s preferred measures of core inflation —  CPI-trim and CPI-median — both rose by 0.4 per cent monthly, which caused the average three-month annualized rate to jump back up to 3.6 per cent. Consequently, this raises the risk that the Bank of Canada will need to keep interest rates higher for longer. 

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