Canadian price growth edged lower on tax holiday in December – RBC Economics

The tick lower in inflation in December to 1.8% was above our own assumption for a 1.5% increase, but largely due to a smaller than assumed reduction in prices from the temporary GST/HST holiday in December, and was still slightly below market expectations for a 1.9% reading, RBC Economics' Assistant Chief Economist Nathan Janzen notes.

Risks on price growth tilted to the downside

"Controlling for the tax distortion, price growth was mixed but is still consistent with further signs of underlying easing in price growth." 

"The CPI data will be impacted by the tax holiday into February, but a weakened Canadian GDP and elevated unemployment rate (with the potential for protectionist U.S. trade policy to make both worse) is pushing inflation expectations from businesses and households lower."

"That leaves the risks on price growth tilted to the downside and argue for further BoC interest rate cuts."