RBC Says Canada's CPI Growth Ticks Higher on Tax Distortions; Sees Little Reason for Further Bank of Canada Easing

12:00 PM EST, 01/19/2026 (MT Newswires) -- Canada's headline consumer price index growth rose to 2.4% year over year in December from 2.2% in November, with the increase largely driven by higher indirect taxes, with prior-year levels lowered artificially by a temporary GST/HST holiday in place from mid-December 2024 to mid-February 2025, said RBC.

Much of the increase came from a jump in year-over-year restaurant price growth to 8.5% from 3.3% in November. Restaurant prices were exempt from GST/HST a year ago during the tax holiday having declined 1.6% year-over-year in December, 2024, noted the bank.

Still, grocery prices were significantly less impacted by tax distortions and jumped to 5.0% above year-ago levels, the highest rate since October 2023.

As in recent months, much of the upward pressure in prices came from higher prices for meat, which have been pushed up in part by reduced North American cattle inventories. Beef price growth actually slowed slightly in December but was still 16.8% on a year-over-year basis.

Energy prices continue to provide offset, running below year-ago levels, although also in part due to tax distortions from the removal of the consumer carbon tax in most provinces in April, 2025. Energy prices were down 8.8% from a year ago in December.

Overall, price growth excluding indirect taxes slowed from 2.8% year over year in November to 2.5% in December. Excluding food, energy, and indirect taxes, price growth held steady at 2.4% on a year-over-year basis in December.

Broader underlying core measures showed further signs of moderation. The Bank of Canada's trim and median measures posted an average 0.1% month-over-month increase in December, the smallest increase since February 2024. The three-month moving average of the measures fell below a 2% annualized rate for the first time since April 2024, although the 12-month growth rate remained above the BoC's 2% inflation target.

The BoC will be encouraged by further signs from Monday's data that inflation is broadly trending back towards the 2% target, but the broader economic backdrop has also shown signs of stabilizing, with the unemployment rate beginning to edge lower, added RBC. Interest rates have already been cut to the neutral levels that wouldn't be expected to add to, or subtract from, inflation pressures over time.

As long as the economic backdrop shows further signs of improvement, and inflation remains at or above 2% target rates, there is little reason for the BoC to lower interest rates further, according to the bank.

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