Canada’s Consumer Price Index climbed 2.4% year-over-year in December 2025, up from 2.2% in November, as a temporary federal tax holiday nudged headline inflation higher while core gauges continued their downward trajectory. This latest reading from Statistics Canada, released on January 19, 2026, underscores a nuanced inflation landscape that reinforces expectations for steady Bank of Canada policy through the year.

The uptick in the headline CPI caught economists slightly off guard, surpassing consensus forecasts of 2.2%. On a monthly basis, prices dipped 0.2% unadjusted but rose 0.3% when seasonally adjusted, reflecting typical year-end discounting patterns tempered by one-off factors. At the forefront was the GST/HST holiday, active from December 14, 2024, to February 15, 2025, which lowered prices on items like restaurant food, alcoholic beverages, toys, children’s clothing, potato chips, and confectionery. This base effect from the prior year’s tax break amplified the annual comparison, pushing the rate higher than it might otherwise have landed.

Offsetting this pressure was a sharp plunge in gasoline prices, which tumbled 13.8% month-over-month after a 7.8% drop in November. Energy prices overall fell 4.2% unadjusted and 1.1% seasonally adjusted, acting as a meaningful brake on headline momentum. Food prices, meanwhile, edged up modestly at 0.1% unadjusted and 0.25% seasonally adjusted, remaining a relatively stable influence without reigniting broader concerns.

Delving deeper, the Bank’s preferred core inflation metrics painted a more reassuring picture of underlying trends. CPI-trim eased to 2.7% from 2.9%, marking its third straight monthly decline, while CPI-median softened to 2.5% from 2.8%. These gauges, which exclude volatile food and energy components, highlight persistent cooling in the economy’s core pricing dynamics. Divergences appeared elsewhere: the traditional core excluding food and energy accelerated to a 3.1% seasonally adjusted annualized rate, buoyed by rises in travel services and airfares that countered the gasoline weakness. Yet trimmed mean and weighted median cores stayed subdued at 1.1% and 0.5% respectively, signaling that disinflationary forces dominate.

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For the Bank of Canada, this data aligns seamlessly with its recent stance. Policymakers held the overnight rate at 2.25% in December, deeming it appropriately calibrated. With core measures trending toward the 2% target—analysts project an average annual rate dipping to 2% by summer—the January 28 meeting looks set to deliver another hold. Economists at major institutions concur: the print offers no catalyst for action, allowing the central bank to monitor evolving risks without haste. Bond markets echoed this complacency, with yields softening in response to the core slowdown.

Looking ahead, Statistics Canada flagged an upcoming tweak to its revision policy for CPI-median and CPI-trim, effective with the January 2026 release on February 16. This shift toward international best practices promises sharper alignment with other indicators, potentially refining policymakers’ toolkit.

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In essence, December’s CPI snapshot reveals headline stickiness from fiscal quirks, countered by gasoline’s freefall and core resilience. It cements a narrative of controlled inflation, giving the Bank of Canada breathing room to nurture economic stability into 2026. As monthly data accumulates, watch for the tax holiday’s unwind and energy volatility to shape the path back to target.