Canada’s Inflation Rate Rises to 2.4% in December 2025

Canada's annual inflation rate increased to 2.4% in December 2025, up from 2.2% in November. This rise was primarily influenced by the expiration of a temporary Goods and Services Tax (GST) holiday that had been in effect from December 14, 2024, to February 15, 2025. The tax break had previously lowered prices on various goods, including restaurant meals and children's items, which now contributed to a higher year-over-year comparison as those discounts fell out of the annual data.

Inflation ticks up to 2.4% in December as last year’s GST break impacts data

Statistics Canada reported a monthly decline in the Consumer Price Index (CPI) of 0.2%, which was less than the anticipated 0.3% drop. Core inflation measures, which exclude volatile items like food and energy, showed a deceleration for the third consecutive month. The CPI-median decreased to 2.5% from 2.8%, while CPI-trim fell to 2.7% from 2.9%. These core measures are closely monitored by the Bank of Canada as indicators of underlying inflation trends.

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The overall inflation increase was partially offset by a significant year-over-year decline in gasoline prices, which fell by 13.8% in December, following a 7.8% decrease in November. Excluding food and energy, inflation rose to 3.0% in December, compared to a 2.6% increase in November. This indicates that while headline inflation rose, the underlying pressures remained more stable.

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Following the inflation report, the Canadian dollar appreciated slightly, trading at 1.3880 against the U.S. dollar. Analysts predict that the Bank of Canada will maintain its key interest rate at 2.25% throughout 2026, as the current inflation data does not warrant immediate changes in monetary policy. Andrew Grantham, a senior economist at CIBC Capital Markets, noted that despite the unexpected rise in headline inflation, the underlying inflation trends suggest stability, allowing the central bank to remain on the sidelines.

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Some economists have expressed caution regarding the inflation data. Douglas Porter, chief economist at BMO Economics, remarked that while the headline figure was above expectations, the details indicated a softer inflation environment. He emphasized that there is insufficient evidence to prompt the Bank of Canada to consider rate cuts, stating, “It would take a serious deterioration in the economy and some further signs of core inflation decelerating to again open the door for renewed policy easing—we’re simply not there yet.”

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The December inflation figures reflect a complex interplay of temporary fiscal policies and market dynamics. While the headline rate has increased, core measures suggest that inflation is stabilizing closer to the Bank of Canada's target of 2%. The upcoming monetary policy meeting on January 28 will be crucial, as it will provide further insights into the Bank's approach in light of these inflation trends.

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