Canada’s December 2025 CPI Slips to 2.70%: Inflation Eases, Policy Path in Focus
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Canada’s Consumer Price Index (CPI) for December 2025 registered a 2.70% year-over-year increase, according to the latest Sigmanomics database release on January 19, 2026[1]. This marks a 0.10 percentage point (pp) deceleration from November’s 2.80% and is the lowest reading since April 2025’s 2.80%. The December print matches consensus forecasts and continues a gradual disinflationary trend observed since the summer.
Drivers this month
- Shelter costs contributed approximately 0.18 pp to the headline figure, reflecting persistent rent and mortgage interest pressures.
- Food prices added 0.12 pp, with grocery inflation moderating but still above historical norms.
- Energy prices subtracted 0.05 pp, as gasoline costs declined month-over-month.
Policy pulse
With December’s 2.70% CPI, inflation remains above the Bank of Canada’s 2% midpoint target but within the 1–3% control range. The steady deceleration since October’s 3.10% suggests the central bank’s restrictive stance is gaining traction, though policymakers remain cautious given sticky core components.
Market lens
Immediate reaction: CAD weakened 0.15% against USD, while 2-year Canadian yields fell 4 basis points in the first hour post-release. Markets interpreted the data as supportive of a potential rate cut by mid-2026, with breakeven inflation rates dipping modestly.
The December 2025 CPI print of 2.70% follows a sequence of moderating inflation: November 2.80%, October 3.10%, and September 3.00%. The 12-month average stands at 2.97%, underscoring a clear downtrend from the 3.10–3.20% range seen in mid-2025. On a month-over-month basis, December’s CPI rose just 0.10%, compared to 0.20% in November and 0.30% in October.
Drivers this month
- Core inflation (excluding food and energy) held steady at 2.60%, signaling underlying price pressures remain contained.
- Goods inflation slowed to 1.90%, while services inflation remained elevated at 3.30%.
- Regional disparities persisted, with Ontario and British Columbia posting above-average shelter inflation.
Policy pulse
The Bank of Canada’s December policy statement emphasized vigilance, citing persistent shelter and wage growth. Fiscal policy remains broadly neutral, with the federal government maintaining targeted support but avoiding large-scale stimulus.
Market lens
Bond markets priced in a 60% probability of a 25 bp rate cut by July 2026 following the release. The S&P/TSX Composite Index advanced 0.30%, reflecting investor optimism that inflation is coming under control.
Drivers this month
- Shelter inflation remains the largest single contributor, offsetting declines in energy and durable goods.
- Food inflation is decelerating but still above pre-pandemic norms.
- Transportation costs were flat, reflecting stable auto and fuel prices.
Policy pulse
The CPI’s proximity to the 2% target strengthens the case for a policy pause, but the Bank of Canada is likely to wait for further confirmation from core measures before easing. Fiscal restraint and a stable government budget are supporting the disinflation process.
Market lens
Immediate reaction: S&P/TSX Composite Index rose 0.30%, CAD/USD slipped 0.15%, and 2-year yields dropped 4 bps. The bond rally and currency dip reflect market expectations for a dovish policy shift if disinflation persists.
Looking ahead, the inflation outlook for Canada is shaped by a mix of domestic and external factors. The base case scenario (60% probability) sees CPI stabilizing near 2.50% by mid-2026, as shelter and food costs gradually moderate and energy prices remain subdued. Upside risks (25% probability) include renewed supply chain disruptions or a rebound in global commodity prices, which could push inflation back above 3%. Downside risks (15% probability) stem from weaker consumer demand or a sharper global slowdown, potentially driving CPI closer to 2% or below.
Drivers this month
- Labour market resilience and wage growth could keep services inflation sticky.
- Geopolitical risks—such as Middle East tensions—pose upside risks to energy prices.
- Fiscal policy is expected to remain neutral, with no major stimulus or austerity measures planned.
Policy pulse
The Bank of Canada is likely to maintain its current policy rate through the first half of 2026, awaiting clearer evidence of sustained disinflation. Financial conditions are expected to remain tight, with gradual easing possible if inflation continues to trend lower.
Market lens
Markets are pricing in a cautious easing cycle, with rate cut expectations firming for the second half of 2026. The CAD may remain under mild pressure, while Canadian equities could benefit from lower rates and improved consumer sentiment.
December 2025’s CPI print confirms that Canada’s inflation is moving in the right direction, albeit at a measured pace. The data supports a “wait-and-see” approach from policymakers, with markets increasingly confident that the worst of the inflation surge is behind. Structural factors—such as housing supply constraints and demographic shifts—will continue to shape the inflation path in 2026 and beyond. Investors should monitor core inflation, wage trends, and global commodity prices for early signals of any deviation from the current disinflationary trajectory.
Key Markets Likely to React to CPI
Canadian CPI readings have a direct impact on domestic bond yields, the CAD, and equity indices, while also influencing global risk sentiment. The following tradable symbols are historically sensitive to Canadian inflation surprises, reflecting their exposure to interest rate expectations, consumer demand, and cross-border capital flows.
- TD – Toronto-Dominion Bank: Sensitive to rate expectations and consumer credit trends.
- SHOP – Shopify: Correlates with Canadian consumer spending and e-commerce activity.
- USDCAD – USD/CAD: Tracks relative inflation and rate differentials between Canada and the US.
- EURCAD – EUR/CAD: Reflects global risk appetite and Canadian macro trends.
- BTCUSD – Bitcoin: Sometimes viewed as an inflation hedge, reacts to shifts in fiat currency sentiment.
| Year | Avg. CPI YoY (%) | USDCAD Range |
|---|---|---|
| 2020 | 0.70 | 1.27–1.45 |
| 2021 | 3.40 | 1.20–1.29 |
| 2022 | 6.80 | 1.25–1.39 |
| 2023 | 3.90 | 1.32–1.39 |
| 2024 | 3.10 | 1.32–1.38 |
| 2025 | 2.97 | 1.33–1.37 |
Since 2020, periods of rising Canadian CPI have generally coincided with a stronger CAD (lower USDCAD), while disinflation has led to modest CAD weakness. The relationship is not one-to-one but reflects the interplay between inflation, rate expectations, and global risk appetite.
FAQ: Canada’s December 2025 CPI Slips to 2.70%: Inflation Eases, Policy Path in Focus
- What does the December 2025 CPI reading mean for Canadian monetary policy?
- The 2.70% print supports a cautious approach from the Bank of Canada, with rate cuts likely delayed until sustained disinflation is confirmed.
- How did markets react to the December 2025 CPI release?
- Canadian bond yields fell, the CAD weakened slightly, and equities rallied modestly, reflecting expectations of a dovish policy shift.
- What are the main risks to the inflation outlook in 2026?
- Upside risks include energy price shocks and supply disruptions; downside risks stem from weaker demand or a global slowdown.
Bottom line: Canada’s December 2025 CPI confirms a steady disinflation trend, with policy and markets now focused on the timing and pace of the next moves.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
Updated 1/19/26
December’s 2.70% CPI print is 0.10 pp below November’s 2.80% and 0.27 pp below the 12-month average of 2.97%. The chart below illustrates a steady disinflationary trend since July’s 3.10% peak, with only minor volatility in the autumn months. Notably, the December reading is the lowest since April 2025, when CPI also stood at 2.80%.
Compared to the same month last year (December 2024: 3.00%), annual inflation has fallen by 0.30 pp. The last six months show a clear downward trajectory: July 3.10%, August 3.00%, September 3.00%, October 3.10%, November 2.80%, December 2.70%. This pattern suggests that the Bank of Canada’s tightening cycle is having the intended effect, though progress is gradual.