By Ismail Shakil and Steve Scherer
OTTAWA (Reuters) -Canada’s annual inflation rate eased more than expected in December as gas prices came down but core measures remained little changed from the previous month, Statistics Canada said on Tuesday, making another interest rate hike this month likely.
Inflation slowed to 6.3% in December from 6.8% in November, a notch lower than the 6.4% median forecast of analysts. Prices fell 0.6% from the previous month, again showing price pressures easing more than analysts’ forecast for a 0.5% decline.
Consumers paid 13.1% less at the pump in December compared with November, the largest monthly decline since April 2020, Statistics Canada said. Food prices rose 11% on the year in December, down marginally from 11.4% in November.
The average of two of the central bank’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 5.2% compared with 5.3% in November. Excluding food and energy, prices rose 5.3% in December versus 5.4% in November.
“The fact that the core metrics are stable does speak to this idea that there’s still an economy in excess demand, that underlying inflationary pressures are pervasive,” said Andrew Kelvin, chief Canada strategist at TD Securities.
“With that in mind, I think it argues for the Bank of Canada lifting rates later this month, rather than arguing for them to stay on hold,” Kelvin said, adding that he sees a 25-basis-point increase and then a likely pause by the central bank.
December’s headline figure is still more than three times the Bank of Canada’s 2% target. Most analysts agreed the Bank of Canada would hike rates by a quarter of a percentage point on Jan. 25, when it next meets.
Money markets see a 77% chance of a quarter-point hike by the Bank of Canada next week, up from 70% before the data.
“This report is largely as anticipated and we therefore continue to expect the Bank of Canada to raise rates by 25 basis points next week before pausing for the rest of the year,” said Karyne Charbonneau, an economist at CIBC Capital Markets.
The bank has raised its benchmark interest rate at a record pace of 400 basis points in nine months to 4.25% and said after its last increase that a decision to raise rates further would be more data-dependent.
The Canadian dollar strengthened to 1.34 per U.S. dollar, or 74.63 U.S. cents, after the data.
(Reporting by Ismail Shakil and Steve Scherer in Ottawa, with additional reporting by Dale Smith in Ottawa, Fergal Smith and Maiya Keidan in Toronto; Editing by Andrea Ricci)
