Canadian Consumer Price Index (December 2025)

Higher inflation in December due to comparison to GST/HST holiday last year

• Headline CPI inflation ticked up slightly to 2.4% year-on-year (y/y) in December, slightly above consensus expectations. The acceleration was driven by the comparison to lower prices during the federal government's temporary sales tax holiday a year earlier. 
• The temporary GST/HST exemption in December 2024 applied to spending on restaurant food, alcoholic beverages, toys, games and hobby supplies, children's clothing and some grocery items, such as potato chips and confectionery.
• Not surprisingly, the biggest lift to headline CPI came from restaurant meals (+5.8 y/y), which were exempt from sales taxes the year prior. Prices at grocery stores were flat on the month, but up 5.0% y/y due to hefty increases for beef and coffee.
• There was some offset from prices at the pump, where prices were down 13.8% from a year ago in December. 
• Service inflation rose to 3.3% y/y in December, likely boosted by restaurant meals, but shelter inflation continued to cool (2.1% y/y). Prices for owned accommodation are up only 1.3% y/y – the slowest pace in 12 years. This has been helped both by smaller increases in mortgage interest costs (+1.7% y/y) and falling homeowners' replacement costs (-1.6% y/y). 
• The Bank of Canada has focused on broader "underlying inflation" recently, but the official core inflation metrics (median and trim), both cooled further in December, running at 2.6% y/y on average. Zeroing in on trends over the past three months, trim and median inflation were running at only 1.5% and 1.9% (annualized), now below the Bank of Canada's 2% target.

Key Implications

• Headline inflation in December's was boosted by comparisons to last year's GST holiday, but zeroing in on core measures shows inflation in Canada has cooled. Underlying inflation is still above the 2% target on a year-on-year basis, but it is getting a lot closer in recent months.
• Overall, December's data is consistent with our expectation for inflation to moderate to the Bank's target over the next year (see recent forecast), as past inflation problem areas, like rents, continue to cool. 

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.