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Special Report

Canada Inflation Research Brief

January 2025

Inflation Remains Below Target Range, But
Price Pressures Could Be Reaccelerating

Inflation inches lower amid government policy. Canada’s headline inflation rate fell 10 basis points to 1.8 per cent in December, falling slightly short of market expectations that it would hold at 1.9 per cent. This reading marked the fifth consecutive month that inflation has sat at or below the Bank of Canada’s target of 2.0 per cent. However, because the prices used in the Consumer Price Index are inclusive of all excise and other taxes paid by consumers, December’s deceleration was largely fuelled by the ongoing GST tax holiday. In contrast, it appears previous interest rate cuts are causing underlying price pressures to reaccelerate. While the BoC’s preferred CPI-trim and CPI-median measures of core inflation – which use tax-adjusted price data – eased on a year-over-year basis, the three-month annualized rate of these two measures accelerated to 3.5 per cent. Though this is unlikely to prevent a further rate cut this month, it is a trend the central bank will continue to monitor.

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