The signal and the noise: deciphering Canada's year-end inflation surge

The final inflation reading of 2025 has arrived with a headline figure that, at first glance, suggests a surprising reversal in Canada’s disinflationary trend. Headline CPI growth climbed to 2.4% in December, up from 2.2% in November. However, for those navigating the Canadian labor and staffing markets, this uptick is less a sign of reignited price pressures and more a mathematical artifact of previous policy. Much of the acceleration reflects "base effects" stemming from the temporary GST/HST holiday implemented a year ago, which artificially lowered prices in late 2024 and early 2025. This creates a distorted year-over-year comparison today, particularly in sectors like dining where restaurant prices jumped to 8.5% above year-ago levels simply because the tax was absent during the same period last year.

Cooling Beneath the Surface

When the noise of tax distortions is stripped away, the underlying economic picture definitely remains one of cooling. The Bank of Canada’s preferred "trim" and "median" core measures, which filter out such volatile shifts and one-off tax impacts, posted their smallest average month-over-month increase since February 2024 at just 0.1%. On a three-month moving average, these core measures have actually fallen below the 2% annualized rate for the first time in nearly two years. This suggests that the broad inflationary fire that defined the post-pandemic era has effectively been extinguished, leaving behind a market that is stabilizing rather than overheating.

The Affordability Divergence

While the technical data points to a return to target, the lived experience of inflation remains highly uneven. Energy prices continue to act as a significant anchor, running nearly 9% below year-ago levels, partly due to the removal of the consumer carbon tax across most provinces in early 2025. Conversely, the grocery aisle remains a source of persistent stress. Food prices rose 5.0% year-over-year in December, with meat prices, driven by reduced North American cattle inventories rather than domestic monetary policy, surging by 8.5%. For the staffing industry, this persistent pressure on essential goods serves as a reminder that even as broad inflation cools, the "affordability crisis" continues to influence wage expectations and labor mobility, particularly at the lower end of the income distribution.

The Bank of Canada’s Steady Hand