BMO Says Canadian CPI in December Shows a "Messy" Month

12:43 PM EST, 01/19/2026 (MT Newswires) -- Canadian consumer prices fell 0.2% month over month in December, but that translates to a 0.3% month-over-month rise in seasonally adjusted terms as prices are normally cut late in a year, sid Bank of Montreal (BMO).

Given the GST holiday on restaurant meals and other various goods a year ago, this was enough to push up the headline inflation rate by two ticks to 2.4%, even a bit higher than BMO's above-consensus call of 2.3%.

However, this was a "mixed" report, as some measures of core inflation eased to their slowest pace in years, noted the bank. For example, median CPI was flat in adjusted terms in the month, shaving the yearly rate three ticks to 2.5% and matching its slowest pace in the past five years.

Trim nudged up just 0.1% month over month, shaving it two ticks to 2.7%. On the other side, the old-fashioned core measure excluding food and energy rose 0.3% month over month, nudging up its yearly rate a tick to 2.5%.

Perhaps the main takeaway is that after a year of some wide divergences, almost all of the main measures of inflation are now very close to 2.5%, in tune with the Bank of Canada's view on the pace of underlying inflation, stated BMO. That's also where the bank expects inflation to average for all of 2026, after rising 2.1% last year.

Digging into some of the details reveals, again, a "mixed" message, according to the bank. After being surprisingly docile for much of 2025, airfares reportedly spiked 34.5% month over month in December, the second largest monthly rise on record-and shaving the yearly decline to just 0.8% from a 5.9% drop in November. Hotel charges dropped again last month and are now reportedly down 10.8% year over year, the largest drop since the depths of the pandemic. In the shelter component, rents backed up again to a 4.9% yer over year pace, almost exactly matching their average increase for all of last year.

On the other side, mortgage interest costs dipped last month and are now up just 1.7%, a full 10 percentage points below the pace of a year ago. In the food, grocery prices didn't make a big monthly move, but still rose a hearty 5.0% y/y, as last year's GST holiday made for a tough comparison for some items. Of course, that factor was a massive deal for restaurant meals, which popped 8.5% y/y; the two-year trend is a more reasonable 3.3%.

A couple of other on the high side are: a) telephone services, which are now up 13% year over year, the biggest yearly increase since 1982, and b) new vehicles, which are up 3.2% year over year, which while not a large move still weigh heavy given near-7% share of the CPI basket. On the low side, gasoline prices fell 7.1% month over month in December and are down a hefty 13.8% year over year.

In a sense, this can be construed as bad news, given that even with a major helping hand at the pumps, the inflation rate still ticked up.

Given the big weight of some special factors in this "messy" month, BMO believes the "mild" core news in this report counters some of the bad news. While the headline rate was above expected, the details were somewhat softer, and the BoC will likely be encouraged by the pullback in most core CPI measures.

However, there certainly isn't enough here to push the BoC toward more cuts. It would take a serious deterioration in the economy and some further signs of core inflation decelerating to again open the door for renewed policy easing and Canada simply is not there yet, added the bank.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.