Canadian inflation rose faster than expected in December, but signs of cooling core price pressures provided some relief to policymakers assessing the direction of interest rates in 2026.
Data showed consumer prices rose 2.4% on an annualized basis, driven mainly by the base effect of the temporary sales tax exemption in the previous year, while monthly inflation moderated.
While headline inflation rose, the Bank of Canada’s preferred core measure continued to decline for a third straight month, suggesting underlying price pressures in the economy are easing.
Both the CPI-median and CPI-trim fell to their lowest levels since late 2024, supporting the view that inflation is moving closer to the central bank’s 2% target.
The developments are expected to reinforce the Bank of Canada’s decision to keep its policy rate at 2.25%, with financial markets expecting no rate changes over the course of next year.
However, accelerating service price inflation and rising food costs remain risks, suggesting the path back to price stability may remain uneven
