Jan 21st, 2025: The latest inflation update for December 2024 brings some encouraging news! The Consumer Price Index (CPI), which measures changes in prices over time, increased by 1.8% compared to last year. This is a slight drop from the 1.9% rise we saw in November, thanks to lower prices for food at restaurants and alcohol bought in stores. Without food included, the CPI rose by 2.1%.
One key factor behind this improvement was a temporary sales tax break (GST/HST exemption) that started on December 14, 2024. This tax break applied to things like food, alcohol, tobacco, cannabis, education materials, and clothing, helping to lower prices in these categories.
On a monthly basis, overall prices dropped by 0.4% in December after staying flat in November. However, when seasonal changes are factored in, prices increased slightly by 0.2%.
How the GST/HST Break Helped
Around 10% of all items measured by the CPI were affected by this tax break. Here are some highlights:
- Food from Restaurants: Prices dropped by 1.6% compared to last year, with a record monthly decrease of 4.5%.
- Alcohol from Stores: Prices fell by 1.3% year-over-year and by 4.1% compared to November, marking the biggest monthly drop since 2005.
- Recreation and Clothing: Toys, games (excluding video games), and hobby supplies were 7.2% cheaper compared to last year. Children’s clothing also dropped significantly, down 10.6% from December 2023.
Housing Costs and Mortgages
The cost of housing increased at a slower rate in December. Rent prices were up 7.1% compared to last year, a bit less than the 7.7% increase in November. Overall, rent prices have risen by 22.1% since December 2021.
Mortgage interest costs are still rising, but the pace is slowing. In December, the mortgage interest index increased by 11.7% compared to last year, the smallest rise since October 2022. This reflects the impact of higher interest rates on borrowing costs.
Gasoline Prices and General Inflation Trends
Gas prices went up in December due to comparisons with last year, and travel costs also rose. However, inflation measures that focus on the basics (excluding food and energy) showed some stability. These core inflation measures averaged 2.55% in December, slightly lower than 2.65% in November.
What’s Next for the Bank of Canada?
This report gives the Bank of Canada a reason to lower its interest rate by 0.25% to 3.0% during its January 29 meeting. The temporary sales tax break created a short-term dip in inflation, but this effect will fade in the coming months.
There’s also some uncertainty about the possibility of new tariffs from the U.S. If these tariffs are imposed, they could push prices up temporarily but might also slow down the economy in the long run. In that case, the Bank of Canada would focus more on preventing a recession rather than controlling inflation.
Key Takeaway
The December 2024 inflation update brings good news, with lower price increases in many areas and a sign that economic conditions may be improving. However, challenges like trade policies could still impact the economy in the months ahead. For now, the outlook is looking brighter as we move into 2025.
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