December 2022 CPI: Start the new year with some good news

Canada’s headline Consumer Price Index inflation slowed to 6.3% year-over-year in December. The picture for core inflation remained the same, as food, shelter and services price growth were modestly improved.

The Bank of Canada has aggressively raised its policy rate by 4% since March. Their last announcement signaled a willingness to pause to assess the impact of these higher interest rates on the economy. However, given December’s stronger job gains and still elevated inflation expectations in the Bank’s business and consumer surveys, we expect the Bank of Canada to raise rates one last time next week — by 25 basis points, to end their tightening cycle at 4.5%.
Mahmoud Khairy, Economist, Business Data Lab, Canadian Chamber of Commerce

KEY TAKEAWAYS

Canada’s headline Consumer Price Index (CPI) inflation grew at a slower pace to 6.3% year-over-year in December.
This is a noticeable improvement, and unfortunately, the picture for core inflation remains the same.
The average of the Bank’s two preferred “core inflation” measures remained stable at 5.2% year-over-year.
Food inflation remains broad-based. Grocery prices rose 11.0% year-over-year in December (down from 11.4% in October) and remains a major concern for consumers.
Shelter costs slowed down noticeably to 7.0% (from 7.2% last month) as housing market shows signs of cooling. However, rising mortgage rates (up 18.0% from 14.5% in November given a much higher Bank policy rate) and rents (5.8%, due to increased demand for rentals from those being priced out of owning a house) continue to put upward pressure on the CPI.
Price increases for both goods and services slowed significantly to 6.9% and 5.6% respectively.
Inflation decreased in all provinces. This month’s decrease was the most in Atlantic Canada driven by lower furnace fuel oil prices. In December, inflation was highest in Manitoba (8.0%) and lowest in Newfoundland and Labrador (5.7%).
The Bank of Canada has aggressively raised its policy rate by 4% since March. Their last announcement signaled a willingness to pause to assess the impact of these higher interest rates on the economy. However, given December’s stronger job gains and still elevated inflation expectations in the Bank’s business and consumer surveys, we expect the Bank of Canada to raise rates one last time next week — by 25 basis points, to end their tightening cycle at 4.5%.