- Canadian consumer price inflation slowed to 0.7% year-on-year in December, down from 1.0% in November.
- The slowdown was broad based, with five of the major categories decelerating in the month. Clothing and footwear prices led the slowdown, with prices down 3.4% relative to a year ago (from -2.3% in November).
- On a seasonally adjusted basis prices were up a modest 0.1% in the month. The only major category to see gains was recreation, but even these were somewhat artificial given the disruption in seasonal travel services due to the pandemic.
- Two of the three Bank of Canada’s core inflation measures edged lower in December. CPI-trim slowed to 1.6% (from 1.7%) and CPI-common to 1.3% (from 1.5%). CPI-Median was unchanged at 1.8%.
- Inflation is muted in Canada and still very much baring the scars of the health and economic crisis. As the worst point in the crisis moves further into the rear-view mirror, price growth will pick up. Driven by rising energy prices, the headline rate is likely to hit 2% by the second quarter of this year.
- In the meantime, policymakers will remain focused on bridging the economy to the other side. Delays in vaccine distribution suggest a hard couple of months ahead of us. We expect to see little change in the Bank of Canada’s messaging with respect to monetary policy when the rate decision is announced later this morning, except to recognize these downside risks.