The Canadian inflation rate eased in December, slowing to 0.7% in December from the 1.0% recorded in November.
Statistics Canada reported last week that prices increased in six of the eight major components on a year-over-year basis in December.
Food prices rose 1.1% on an annual basis in December compared with 1.9% in November as the cost of fresh vegetables increased 1.1% compared with the 4.6% recorded in the previous month. Prices for fresh fruit declined 6% on an annual basis.
Transportation prices fell 0.6% whilst air transportation prices slumped 14.5%.
Capping the weakest year of growth for Canada since 2009, the Bank of Canada left the benchmark interest rate unchanged at 0.25% as well as reiterating that it did not expect inflation to return sustainably to its 2% target until 2023.
Statistics Canada reported that gasoline prices were down 8.5% in December compared with a year earlier. However, gasoline prices were up 3.3% last month compared with November as oil prices increased.
Excluding gasoline, the annual pace of inflation in December was 1% compared to 1.3% in November.
Muted and Unexpected Slowdown in Canadian Economy
TD Bank senior economist James Marple said:
“Inflation is muted in Canada and still very much bearing the scars of the health and economic crisis,”
“As the worst point in the crisis moves further into the rearview mirror, price growth will pick up. Driven by rising energy prices, the headline rate is likely to hit 2% by the second quarter of this year.”
James Marple
Royce Mendes, a senior economist at CIBC Capital Markets added:
“It’s an unexpected slowdown in inflation,”
“Looking at the details, I don’t think it much changes the thinking at the Bank of Canada.”
Royce Mendes
The disappointing inflation figures follow strong Canada homes sales data with December posting an all-time high homes sales and house price data.
