MNI: Canada CPI Slows Amid Dec Sales Tax Holiday, So Does Core
MNI (OTTAWA) - Canada's inflation faded one-tenth to 1.8% as expected in December reflecting a tax holiday and while central bank officials say they will overlook that temporary effect, core rates also slowed amid economic slack that alongside threatened U.S. tariffs will keep the BOC cutting at the Jan. 29 decision.
Statistics Canada's Consumer Price Index showed the first ever annual decline in restaurant meals that dropped 1.6%, Statistics Canada said Tuesday. Alcohol prices also declined 1.3%, also because of the two-month GST tax break that began Dec. 14. Consumer prices also declined 0.4% on a monthly basis.
Core rates of inflation that exclude such taxes slowed in December, in line with Bank of Canada Governor Tiff Macklem's view that more rate cuts can be justified to keep inflation around the 2% target amid modest slack. The median index slowed to 2.4% from 2.6% and the trim index to 2.5% from 2.6%. StatsCan also said inflation excluding indirect taxes was 2.3% in December.
The headline pace of inflation matched a consensus economist forecast. With inflation coming in as expected, the Bank's main focus in coming weeks may shift to U.S. threats of a 25% tariff starting around Feb. 1. Bank officials have said they can only move in response to implemented policies and there could be effects on both inflation and growth, though former officials have told MNI it's more likely weaker growth is the bigger problem. Most economists had predicted the Bank will cut 25bps next week and perhaps a few more times this year to bring monetary policy to neutral or slightly stimulative.
The BOC has cut borrowing costs to 3.25% from 5% starting in June including half-point moves in October and December. Officials have said inflation will slow to about 1.5% in January as a result of the tax break.