Inflation Holds Steady at 2.2% Ahead of Bank of Canada Decision

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(Bloomberg) -- Consumer price inflation in Canada held steady in December, bolstering both market and economist expectations that the Bank of Canada will hold interest rates at 1.75% during its meeting later Wednesday morning.

The overall consumer price index was up 2.2% in December from a year earlier, matching November’s gain, Statistics Canada said from Ottawa. That missed economist expectations for a 2.3% reading.

Core inflation -- often seen as a better measure of underlying price pressure than the headline figure -- edged down to 2.10% from 2.13% in November. That also missed economist forecasts for 2.17%.

Key Insights

  • Wednesday’s report suggests underlying price pressures remain right around the Bank of Canada’s 2% inflation target. This should help reinforce any decision by the central bank to refrain from lowering borrowing rates even though growth in the last quarter, if any, will be sluggish.
  • Gasoline prices were higher 7.4% year over year in December on a weak comparison from 2018, when prices were lower due to a global oversupply of oil
  • Excluding gasoline, CPI rose 2% in December, the smallest year-over-year gain since November 2018

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  • Vegetable prices continued to slow in December, in part by lower year-over-year prices for lettuce as an E. coli outbreak in 2018 caused a prices to rise.
  • Mortgage interest costs rose 6% in December from a year earlier, the slowest annual pace since August 2018 as major commercial lenders continued to lower their interest rates
  • On a monthly basis, the consumer price index was flat in December

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