Canada’s annual inflation rate climbed to 2.4 percent in December, up from 2.2 percent in November, driven largely by the fading impact of the federal government’s temporary GST and HST holiday, according to new data released by Statistics Canada.
The year-over-year rise in the Consumer Price Index (CPI) reflects the end of the tax holiday that began on Dec. 14, 2024. During that period, a range of goods and services were temporarily exempt from federal and provincial sales taxes. As those exemptions no longer factor into the year-over-year comparison, upward pressure has returned to the headline inflation rate, the agency said.
The two-month tax break, which ran until Feb. 15, was introduced by the Justin Trudeau Liberal government to ease the cost of so-called “holiday essentials.” Items such as restaurant meals, snacks, prepared foods, beer, wine, and children’s goods including clothing, footwear, diapers, and toys were included in the exemption.
Statistics Canada reported that the largest contributor to December’s inflation increase was restaurant food prices, which rose 8.5 percent compared to a year earlier. Several grocery items that were part of the tax holiday, including potato chips and confectionery products, also recorded notable annual price increases.
Prices for alcoholic beverages both those sold in stores and served in licensed establishments rose at a faster pace, as did costs for toys, hobby supplies, and children’s clothing.
Overall, food purchased from grocery stores increased by five percent year over year, though monthly price levels remained relatively stable. Grocery inflation has been edging higher in recent months, following a 4.7 percent annual increase recorded in November.
Among individual items, coffee and fresh or frozen beef were the biggest contributors to food inflation, with prices jumping 30.8 percent and 16.8 percent respectively in December.
The rise in inflation was partially offset by a sharp decline in gasoline prices, which fell 13.8 percent year over year. Statistics Canada attributed the drop to a global surplus of crude oil that helped push fuel prices lower.
Travel-related costs showed mixed trends. Airfare prices surged 34.5 percent on a monthly basis, outpacing last year’s holiday-season increase, although air transportation costs were slightly lower compared to December 2024. Prices for travel tours also rose month over month, driven by higher costs associated with trips to U.S. destinations.
The December CPI figures mark the final set of inflation data the Bank of Canada will review before making its first interest rate decision of the year on Jan. 28. The central bank held its policy rate steady at 2.25 percent in December.
Economists had largely expected inflation to remain unchanged. A poll conducted ahead of the release showed forecasts centered on a 2.2 percent annual rate, and most analysts said the surprise uptick is unlikely to alter the Bank of Canada’s policy stance.
Scotiabank economist Derek Holt said the data is unlikely to prompt any change in interest rates. “Given that the BoC has been telling markets it’s done with rate adjustments barring big developments, smoothed figures like these won’t change their mindset,” Holt wrote in a Jan. 19 note to investors.
Bank of Montreal chief economist Douglas Porter echoed that view, noting that core inflation measures continue to ease despite the higher headline number. “There certainly is not enough here to push the BoC toward more cuts,” Porter said, adding that a significant economic downturn would be needed to reopen the door to policy easing.
CIBC senior economist Andrew Grantham also downplayed the implications of the data, saying underlying inflation remains too weak to spark concerns about future rate hikes. “We continue to forecast no change in the policy rate during 2026,” he said.
The Consumer Price Index tracks price changes across a fixed basket of goods and services, providing a key measure of inflation and shifts in consumer purchasing power over time.
