By Robb M. Stewart
OTTAWA--Canadians saw further respite in December as prices at the gas pump cooled and durable-goods costs decelerated, though price pressure from groceries was little changed.
The pace of inflation overall continues to ease, pulling back from the peak seen in the summer, though it remains well above the central bank's target, and expectations for inflation continue to run hot. That, after a further jump in employment for the country in December, suggests the door remains open for the Bank of Canada to further ratchet up interest rates later this month if it continues to have concerns about the economy.
Canada's consumer price index rose 6.3% in December from a year earlier, Statistics Canada said Tuesday. The market was expecting the index to advance 6.4% following November's gain of 6.8%. It hit a roughly four-decade high of 8.1% in June.
Compared with the month before, CPI declined 0.6% in December, the largest monthly retreat since April 2020 and a slightly bigger drop than the consensus expectation for the index to fall 0.5% month-over-month, according to economists at TD Securities. On a seasonally adjusted basis, inflation slipped 0.1% in December from November.
The price of gas on a monthly basis fell by the most since April 2020 and was up only modestly compared with a year earlier after a big jump at the pumps in November, thanks to lower crude oil prices amid concerns about a slowing global economy and with less demand after an increase in Covid-19 cases in China, the data agency said. Lower crude prices also cooled growth in prices for fuel oil and other fuels year-over-year.
Excluding volatile food and energy prices, Canada's CPI rose 5.3% in December from a year earlier, after a 5.4% gain in November.
The Bank of Canada, which aggressively lifted its benchmark policy rate in 2022 to its highest in almost 15 years, has forecast inflation will decline to roughly 3% late this year and return to its 2% target by the end of 2024. Still, inflation expectations remain elevated, with a survey of businesses released this week by the central bank showing that more than 80% of firms expect inflation to be above 3% over the next two years.
Economists expect the bank is nearing the end of its tightening cycle, and the central bank has said it will be more data-dependent in future rate decisions as it watches how the economy responds to the four-percentage-point increase in its benchmark rate over the course of the year, bringing it to 4.25%. Economists suggested the odds tilted in favor of another increase with the next policy-rate decision set for Jan. 25 after the country added a stronger-than-anticipated 104,000 jobs in December and the unemployment rate ticked down closer to the record low recorded in the summer.
Two measures of core inflation the Bank of Canada closely monitors, median and trim, eased slightly in December to an average 5.2% from 5.3% the month before, Statistics Canada said.
The statistics agency said the advance in prices for household appliances and other durable goods slowed in December from a year earlier, and homeowners' replacement cost and other owned-accomodation expenses continued to growth a slower pace. But prices for personal care supplies and equipment continued to rise at a faster rate and prices for food bought at stores remained elevated.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
01-17-23 0857ET
