Rising gasoline prices contribute to an inflation hike of 3.4%.

Movie DetailerPolitics Rising gasoline prices contribute to an inflation hike of 3.4%.
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Canada’s annual inflation rate surged to 3.4% in December, as reported by Statistics Canada on Tuesday. This comes after October and November had seen inflation hold steady at 3.1% compared to the previous year. StatsCan stated that the increase in December was driven by higher prices of gasoline, air travel, passenger vehicles, and rent. Food prices at stores also rose by 4.7% compared to last year, the same rate as in November. According to Doug Porter, the chief economist of the Bank of Montreal, the latest consumer price index measurements were not surprising. “That’s a significant improvement from where we were a year ago,” he said. “However, it is still slightly higher than ideal.” Porter noted that Canadians may be spending less on discretionary items and mentioned a decline in travel tours and recreational categories. “We are observing some underlying softness. People are still willing to spend, but not to the same extent as they did a year or two ago,” said Porter. In its release, the federal statistics agency highlighted that the headline inflation figure of 3.4% was mainly due to higher year-over-year gasoline prices in December. While StatsCan stated that gasoline prices actually fell in December 2023 when compared directly to the previous month, they had fallen even further back in December 2022. This phenomenon, known as the “base-year effect,” can result in wider gaps when comparing today’s figures to those of the previous year. It was partly because of this effect that many economists predicted similar inflation numbers to what was released today. If gasoline prices were excluded, Statistics Canada stated that the consumer price index for December would be even higher at 3.5%. However, inflation minus gasoline in December was lower than inflation minus gasoline in November. With the headline inflation number at 3.4%, this economic measure still exceeds the Bank of Canada’s target of 2%. The central bank has raised interest rates 10 times since early 2022 in an attempt to curb high inflation rates. Although a slowdown in inflation has led Bank of Canada governor Tiff Macklem to keep rates steady at 5% for the past few months, many economists anticipate a rate cut sometime in 2024. Macklem stated at the end of 2023 that it is too early to determine if or when that would happen. Bank of Montreal has suggested that December 2023’s inflation data still indicates interest rate cuts in mid-2024, while CIBC predicts that the central bank will need to see “more progress” on certain aspects of inflation before considering lowering interest rates. “It’s not quite at the point where the Bank of Canada would like to see it,” said Doug Porter regarding the latest inflation rates. “They are concerned that inflation pressures may be smoldering at this stage. It wouldn’t take much to ignite them once again.” The inflation data was released a day after a Bank of Canada survey revealed that Canadians are increasingly reducing spending, although mortgage holders remain confident in their ability to meet higher payments upon loan renewal. According to the central bank’s fourth-quarter consumer expectations and business outlook surveys, about two-thirds of Canadians stated that they were reducing spending or planning to do so due to their expectations of interest rates and inflation.

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