CBC Edition

Gasoline prices help drive inflation up to 3.4%

Canada's annual inflation rate jumped to 3.4 per cent in December, according to data released by Statistics Canada on Tuesday.

That's after both October and November saw inflation hold steady at 3.1 per cent compared to the previous year.

StatsCan said that the price of gasoline, air travel, passenger vehicles and rent drove the figure higher in De‐ cember.

Food prices at stores also went up 4.7 per cent com‐ pared to last year, the same rate of increase as in Novem‐ ber.

Without gasoline, infla‐ tion dropped compared to November

In its release, the federal statistics agency pointed out the headline figure of 3.4 per cent inflation was "largely the result of higher year-overyear prices for gasoline in De‐ cember compared with No‐ vember."

While StatsCan says lower gasoline prices pulled infla‐ tion down in December 2023, back in December 2022, gasoline prices were down even more.

This leads to something called the "base-year effect," where comparing today's fig‐ ures to last year's can show a wider gap. It's partly because of this effect that many econ‐ omists predicted inflation numbers similar to what was released today.

If gasoline prices were ex‐ cluded, Statistics Canada said the consumer price index for December would be even higher, at 3.5 per cent.

But inflation minus gasoline in December was lower than inflation minus gasoline in November.

Inflation remains higher than central bank target

With the so-called "head‐ line" inflation number at 3.4 per cent, the economic mea‐ sure is still higher than the Bank of Canada's target of two per cent.

The central bank has in‐ creased interest rates 10 times since early 2022 to try and tamp down high in‐ flation rates, and while a slow‐ down in inflation has led Bank of Canada governor Tiff Mack‐ lem to keep rates steady at five per cent for the last few months, many economists predict a rate cut could come sometime in 2024.

Speaking at the end of 2023, Macklem said it was too early to say if or when that would happen.

"I know it's tempting to rush ahead to that discussion.

But it's still too early to con‐ sider cutting our policy rate," he said at the time.

Economists from BMO have indicated that December 2023's inflation data still points to interest rate cuts in mid-2024, while CIBC is pre‐ dicting the central bank will need to see "more progress" on some elements of inflation before considerin­g a drop in interest rates.

WATCH | Why lower prices aren't often good for the economy:

The inflation data comes a day after a Bank of Canada survey showed Canadians are increasing­ly cutting back on spending, while mortgageho­lders remain confident they can keep up with higher payments when their loans renew.

According to the central bank's fourth-quarter con‐ sumer expectatio­ns and busi‐ ness outlook surveys, roughly two-thirds of Canadians said they were reducing spending or planning to do so because of their expectatio­ns for in‐ terest rates and inflation.