The Bank of Canada has recently lowered its benchmark policy rate to 3.25% and is anticipated to continue this trend in the coming months as inflation stabilizes around the 2% target.

Despite the implementation of a temporary GST holiday, economists agree that the overall trend indicates a consistent decline in inflation, with expectations that holiday spending may ease inflationary pressures in December.

RBC analysts have noted that the growth of food prices is slowing, which could counterbalance increases in energy prices, making the December consumer price index report crucial for understanding inflation trends.

RBC forecasts a sharper decline in inflation to 1.5%, attributing this to the effects of the temporary GST holiday on consumer spending across various goods.

In contrast, BMO predicts December's inflation rate to be slightly higher at 1.8%, citing uncertainty regarding the timing of the GST holiday's impact on prices.

Claire Fan, an economist at RBC, anticipates five consecutive rate cuts in 2025, potentially lowering the key rate to 2% by year-end as the central bank shifts its focus towards stimulating economic growth.

BMO's Doug Porter emphasizes that the Bank of Canada is likely to prioritize economic growth over inflation concerns, suggesting that early and frequent rate cuts may be necessary to mitigate the growth impacts of potential U.S. tariffs.

External factors, such as potential U.S. tariffs, could influence Canada's inflation outlook, with TD's Leslie Preston warning that these tariffs might lead to inflation increases, which could complicate the Bank of Canada's rate-cutting strategy.

TD Bank forecasts that inflation will remain steady at 2.0%, driven by rising energy costs and slight increases in food and shelter prices, with core inflation measures expected to hold at 2.6%.

Overall macroeconomic conditions and consumer demand remain weak, as noted by Claire Fan, which could further influence the Bank of Canada's monetary policy decisions.

Economists predict that Canada's inflation rate fell to an average of 1.7% in December 2024, down from 1.9% in November, reinforcing the likelihood of further interest rate cuts by the Bank of Canada.