Inflation slows ahead of Bank of Canada’s 1st rate decision of 2025

globalnews.ca:

December’s inflation data offered a mixed bag to the Bank of Canada as it gears up for its first interest rate decision of 2025 with U.S. President Donald Trump’s tariff threats still looming over the Canadian economy.

Statistics Canada said Tuesday that the annual pace of inflation cooled to 1.8 per cent last month, down one-tenth of a percentage point from November.

The agency pointed to Ottawa’s GST/HST “holiday,” which began Dec. 14, as the main factor pulling price pressures down. Roughly 10 per cent of StatCan’s representative basket of consumer goods is included in the federal tax break, which includes many grocery items, restaurant meals, alcoholic beverages and children’s toys and clothing.

Excluding food, the consumer price index rose at a pace of 2.1 per cent, StatCan said.

The impact of the tax holiday is expected to be even more pronounced in the January inflation data, which will capture a full-month of price reductions.

The Bank of Canada will be poring over the latest figures ahead of its first interest rate decision of the year, set for Jan. 29.

TD Bank senior economist Leslie Preston told Global News on Tuesday that the inflation relief tied to the tax holiday is going to be temporary and prices will rise again when it ends, so the Bank of Canada will largely “look through” those blips as it gauges longer-term price trends.

Inflation has cooled significantly from the 40-plus-year highs seen in 2022, thanks in part to a rapid tightening cycle from the Bank of Canada.

The central bank has since dropped its benchmark interest rate in five consecutive decisions as inflation eventually fell below its target of two per cent. The Bank of Canada’s policy rate now sits at 3.25 per cent, the top of a “neutral”