Canada’s yearly inflation rate rose to 2.4 percent in December compared to the same month the previous year, following the expiration of a temporary GST reduction that lowered prices. The two-month tax cut, which commenced on December 14, 2024, affected inflation data for part of 2025 but ceased to impact year-over-year figures last month, leading to an uptick in price growth, as reported by Statistics Canada.
In December, the inflation rate slightly exceeded November’s 2.2 percent, with the decrease in gas prices partially offsetting the rise. Excluding energy, inflation climbed to three percent in December, following a 2.6 percent surge in November.
The Bank of Canada monitors core inflation indicators, which eliminate volatile factors like gas prices and tax changes. In December, two of these indicators decreased.
BMO’s chief economist, Douglas Porter, noted that most inflation measures are now approaching the 2.5 percent mark, aligning closely with the Bank of Canada’s outlook on underlying inflation.
Travel tour prices dropped by 3.2 percent in December year-over-year, while air transportation costs fell by 0.8 percent. Despite the usual holiday season increase in transportation prices, there was a notable 34.5 percent surge in December compared to November, exceeding previous years’ December increments.
Although grocery prices remained stable between November and December, they rose by five percent compared to the previous year, driven by coffee and fresh or frozen beef prices.
Porter stated that while the headline inflation rate exceeded expectations, the core measures indicated a softer trend, which could be viewed positively by the Bank. However, he emphasized that the current data does not warrant further policy adjustments by the Bank of Canada.
In conjunction with the December inflation report, Statistics Canada released the annual consumer price review for 2025. Last year, inflation averaged a 2.1 percent increase, lower than the 2.4 percent in 2024, marking the smallest annual average rise since 2020. Despite this, prices have increased by 19.9 percent over the past five years.
Excluding energy, prices rose by 2.6 percent in 2025, mirroring the previous year’s increase. Service prices grew at a rate of 3.1 percent, primarily influenced by reduced growth in mortgage interest expenses due to interest rate cuts by the Bank of Canada. Shelter prices, including rent, experienced slower growth.
Goods prices saw a higher growth rate in 2025 than in the previous year, driven by increased prices for passenger vehicles. Grocery prices also accelerated, rising by 3.5 percent compared to 2.2 percent in 2024, with coffee, cocoa beans, and sweets contributing to the hike.
Impacts from weather-related changes in growing regions affected coffee and cocoa bean prices, while U.S. tariffs on producing countries influenced refined coffee and sweets costs. Meat prices surged by 5.8 percent, with fresh and frozen beef prices soaring by 13.5 percent due to dwindling North American cattle inventories. Fresh fruit prices, especially oranges, also rose.
Additionally, restaurant dining costs increased by 2.6 percent in 2025, slightly lower than the 3.6 percent rise in 2024.