| Consensus | Consensus Range | Actual | Previous | |
| CPI - M/M | -0.4% | -0.4% to -0.1% | -0.2% | 0.1% |
| CPI - Y/Y | 2.2% | 2.1% to 2.2% | 2.4% | 2.2% |
| Core CPI - M/M | 0.0% | -0.4% | ||
| Core CPI - Y/Y | 2.5% | 2.4% |
Highlights
Consumer prices contracted 0.2 percent in December from November, while the consensus in an Econoday survey had centered on a 0.4 percent monthly drop. The 12-month rate picked up to 2.4 percent from 2.2 percent, topping the highest forecast of 2.2 percent.
Excluding food and energy, prices were unchanged on the month and up 2.5 percent from December 2024.
While above the 2 percent target, the year-over-year inflation rate was driven up by tax effects as a temporary GST/HST break on certain items was in effect from December 14, 2024, to February 15, 2025. The tax exemption affects around 10 percent of the CPI basket.
This effect is already factored in by the Bank of Canada, which said in the minutes of its December meeting that in the next few months, CPI inflation is likely to rise slightly. Year-over-year CPI inflation rates of some goods and services components would be higher because the prices had temporarily dropped during the GST/HST holiday a year ago. As a result, the central bank signaled it would look through the short-term volatility.
The BoC's own core measures of inflation, which remove the effect of changes in indirect taxes, slowed down for the third consecutive month, to an average of 2.7 percent in December from 2.8 percent in November, 2.9 percent in October and 3.0 percent in September. All three measures slowed down, with the range edging down to 2.5-2.8 percent in December from 2.8-2.9 percent in November. This slowdown will likely have more weight for the central bank, suggesting that its scenario is likely to remain the same based on today's data.
What will especially matter will be inflation expectations to be released later today in the Business Outlook Survey and its sister consumer survey.
The CPI rose 2.1 percent on average in 2025, slowing down from 2.1 percent in 2024, marking the smallest annual increase since 2020. That being said, prices were still up 19.9 percent over the past five years. Excluding energy, the annual average was 2.6 percent in 2025, unchanged from the previous year.
In December, good prices were down 1.2 percent on the month and increased 1.2 percent year-over-year, and services were up 0.5 percent and 3.3. percent, respectively.
Energy prices declined 4.2 percent from November and 8.8 percent from a year earlier, while food increased 0.1 percent on the month and 6.2 percent year-over-year.
Food from restaurants, rent and cars were the largest upward contributors to the 12-month CPI, while gasoline, down 13.8 percent year-over-year, was the largest downward contributor. Gasoline, down 7.1 percent on the month, was also the largest downward contributor to the monthly CPI, while air transportation, up 34.5 percent from November, was the largest upward contributor.
Prices declined in five of the eight main categories on the month, while they increased 0.6 percent for transportation despite lower gasoline prices. Shelter and food were also up. On a year-over-year basis, seven categories were up, with transportation being the only one to record lower prices from a year ago (down 0.5 percent).
On a seasonally adjusted basis, prices edged up 0.3 percent on the month after rising 0.2 percent in November. Excluding food and energy, the index increased 0.3 percent after 0.1 percent.
Market Consensus Before Announcement
CPI expected down 0.4 percent on month in December and up 2.2 percent on year after gains of 0.1 percent and 2.2 percent in November.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.