Canada’s annualized rate of inflation jumped to 3.4 per cent in December, a reacceleration that was widely anticipated by economists but that will likely leave the Bank of Canada in no rush to cut interest rates.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Inflation picks up speed ahead of Bank of Canada interest rate decision Back to video

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

The hike in the headline inflation figure, up from a 3.1 per cent increase recorded in November, was largely due to a year-over-year rise in gasoline prices, according to the latest consumer price index data released by Statistics Canada on Jan. 16.

Gasoline costs were 1.4 per cent higher than in December 2022, even though monthly prices fell for the fourth month in a row, the national statistics agency said. In November, by contrast, gas prices had declined by 7.7 per cent year over year.

The 4.4 per cent monthly decline in gas prices is affected by continued uncertainty about oil demand and high levels of supply, which is putting downward pressure on prices, the agency said.

Excluding gasoline, the rate of CPI growth slowed year over year to 3.5 per cent in December from 3.6 per cent in November, but remains above the Bank of Canada’s target. The data is the last reading before the central bank’s interest rate decision next week.

Other categories that contributed to overall price growth included airfares, fuel oil, passenger vehicles and rent.

Grocery prices were 4.7 per cent higher, year over year, matching the increase in the prior month.

Prices for travel tours were lower, moderating the acceleration in the all-items CPI.

“Energy component pushed headline inflation reading higher with food price growth holding steady after slowing for five straight months,” Royal Bank of Canada economists Claire Fan and Abbey Xu wrote in a report following the release of the data.

The RBC economists said the December CPI report was more mixed than the headline reading would suggest.

They said some components, such as acceleration in airfares and car price growth, are unlikely to be repeated, while strength in the shelter component, especially in rent prices, persists.

Statistics Canada said rent prices continued to climb in December, rising 7.7 per cent year over year, following a 7.4 per cent increase in November. The higher interest rate environment, among other factors, can create barriers to homeownership and put upward pressure on the index, it added.

“We continue to expect the Bank of Canada to tread cautiously and watch the data carefully, but for further slowing inflation to allow a pivot to interest rate cuts around mid-year,” Fan and Xu wrote in a note.

On a monthly basis, the CPI fell 0.3 per cent in December, after a 0.1 per cent gain in November. This was as a result of lower month-over-month pricing for travel tours at -18.2 per cent and gasoline at -4.4 per cent.

The CPI rose 0.3 per cent on a seasonally adjusted monthly basis, which Desjardins economist Randall Bartlett said isn’t consistent with the Bank of Canada’s two per cent inflation target.

“Details under the hood should give some pause for the overly dovish crowd,” Bartlett wrote in a report, adding that the inflation data being within the range projected by analysts is “pretty much where the good news ends.”

The higher move in most metrics, particularly CPI median and trim, likely wasn’t what the central bank was hoping for, he said.

“The December inflation data make clear that we’re not out of the woods yet.”

• Email: dpaglinawan@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters financialpost.com.