[By: Author: Anis Heydari] – The inflation rate in Canada witnessed a notable increase in December, reaching 3.4%, as per the latest data from Statistics Canada. This surge comes after a consistent rate of 3.1% in both October and November.

Factors Driving Inflation

1. Gasoline and Other Key Contributors

A significant factor in this inflation rise is the cost of gasoline, alongside other elements such as air travel, the price of passenger vehicles, and increasing rent. Furthermore, food prices have shown a 4.7% hike compared to the previous year, maintaining the same growth rate as November.

2. Expert Analysis

Doug Porter, Chief Economist at the Bank of Montreal, finds the latest consumer price index figures unsurprising, yet slightly discomforting. He observes a decrease in discretionary spending among Canadians, with noticeable drops in travel tours and some recreational activities.

3. The Role of Gasoline in Inflation Dynamics

The federal statistics agency emphasizes that higher year-over-year gasoline prices majorly influence the headline figure of 3.4% in December. Interestingly, while December 2023 saw a drop in gasoline prices from the previous month, it was less significant compared to the drop in December 2022. This phenomenon, known as the “base-year effect,” partly explains why economists anticipated these inflation figures.

Inflation and the Central Bank’s Response

1. Impact Without Gasoline Prices

Excluding gasoline prices, December’s consumer price index would have been slightly higher, at 3.5%. However, inflation excluding gasoline was lower in December than in November.

2. Inflation vs. Central Bank’s Target

Currently, the inflation rate exceeds the Bank of Canada’s target of 2%. The central bank has raised interest rates ten times since early 2022 to combat high inflation rates. Bank of Canada Governor Tiff Macklem has maintained a steady rate of 5% in recent months, with predictions of a potential rate cut in 2024.

3. Economic Predictions for 2024

Macklem suggests that it’s too soon to consider rate cuts, labeling 2024 as a transition year. However, financial institutions like the Bank of Montreal foresee interest rate cuts around mid-2024. CIBC expects the central bank to await further progress in certain inflation aspects before contemplating a rate reduction. Doug Porter expresses concern over latent inflation pressures, indicating that a slight trigger could reignite them.

Conclusion

In summary, the Canadian inflation rate, influenced significantly by gasoline prices, stands at a challenging 3.4%. While the central bank’s strategies and future rate cuts are topics of speculation among economists, the underlying economic dynamics continue to evolve.

Source: CBC News