This decrease was largely influenced by a temporary GST/HST tax break implemented on December 14, 2024, which reduced prices on various goods, including food and clothing.

The consumer price index (CPI) showed a slight increase in December, aided by the sales tax break that affected about 10% of the CPI basket.

Core inflation measures, which the Bank of Canada closely monitors, showed slight declines, with CPI-median at 2.4% and CPI-trim at 2.5%.

Canada's annual inflation rate fell to 1.8% in December 2024, slightly below expectations and down from 1.9% in November, according to Statistics Canada.

Significant contributors to the lower inflation rate included reduced prices for food purchases at restaurants and store-bought alcohol.

TD Bank forecasts inflation will stabilize at 2.0%, driven by rising energy costs and slight increases in food and shelter prices.

Without this tax break, the inflation rate would have risen to 2.3%, highlighting its significant impact on consumer prices.

Despite the temporary tax relief, economists noted a broader trend of declining inflation, with holiday spending potentially easing inflation pressures.

Derek Holt from Scotiabank cautioned against rushing into rate cuts, despite upward pressure on core inflation towards the Bank of Canada's 2% target.

The CPI report for December, released on January 21, 2025, is expected to have a significant impact on market expectations and the Canadian Dollar's performance.

External factors, such as potential U.S. tariffs, could also influence Canada's inflation outlook, with warnings that these might hinder the Bank of Canada from cutting rates.

Currently, the Canadian Dollar is at multi-year lows against the U.S. Dollar, with the exchange rate surpassing 1.4400, reflecting broader economic uncertainties.