Food prices slowed as overall inflation cooled to 6.3% in December

Statistics Canada says the annual rate of inflation slowed to 6.3 per cent in December 2022 as consumers paid less for gasoline and even found modest relief in some aisles of the grocery store.

Month to month, inflation was down 0.6 per cent following a 0.1 per cent gain in November. That’s the biggest drop in inflation on a monthly basis since the early COVID-19 pandemic in April 2020.

December’s overall inflation figure marks a slowdown compared with November’s inflation rate of 6.8 per cent. The decline exceeded the consensus from economists, who had expected a decline of 0.4 percentage points from a month earlier.

The agency pointed to an easing in prices at the gas pumps as cooling inflation last month. Motorists paid 13.1 per cent less on a month-to-month basis, which Statistics Canada said was also the largest drop seen since April 2020.

The price of food from the grocery store was up 11 per cent in the month, though that, too, has cooled from 11.4 per cent the month earlier.

While Statistics Canada reported slower price growth among staples such as bakery products (up 13.5 per cent vs. 15.5 per cent in November) and coffees and teas (up 13.2 per cent vs. 16.8 per cent in November), the agency said December saw continued pressure on fresh vegetables, with prices rising 13.6 per cent last month compared with 11.7 per cent in November.

Tomatoes cost 21.9 per cent more in December, year over year.

StatCan blamed bad weather in growing regions for the spike.

Durable goods also saw significant price easing, Statistics Canada said. Household appliances saw a 4.1 per cent drop in price month to month — the largest decline on record — while furniture prices also grew at a slower pace than in November.

The agency attributed this slowdown to an easing in supply chain constraints and lower shipping costs, as well as cooling demand from consumers.

Statistics Canada also pointed to a possible drop-off in demand for used cars as driving a slowdown in yearly price growth for passenger vehicles for the third consecutive month.

Rising interest rates from the Bank of Canada were meanwhile putting pressure on the mortgage interest cost index, which rose 18 per cent in the month compared with 14.5 per cent in November.

December also saw a slowing in the average for core measures of inflation — the central bank’s preferred metrics to gauge the need for further hikes to its policy rate.

The Bank of Canada’s policy rate stands at 4.25 per cent following an increase of 400 basis points over the course of 2022. Following the last oversized rate hike of 50 basis points in December, policymakers at the bank said they were shifting to a “data dependent” approach in deciding whether rates would need to rise further.

CIBC executive director of economics Karyne Charbonneau said in a note to clients Tuesday morning that while December’s inflation data is “good news,” the ongoing tightness of the labour market will likely push the Bank of Canada to another rate hike of 25 basis points at its next decision on Jan. 25.

Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said the direction for inflation is “at least mildly encouraging,” but also poured some cold water on the excitement over a lower headline inflation figure by noting Tuesday that December is a seasonally weak month for price pressures.

“Core inflation eased ever so slightly, but the slow pace of improvement will bring little comfort to policymakers. Underlying price pressures remain sticky for now,” he said. “There’s nothing in this report to keep the Bank of Canada from hiking rates another 25 bps at next week’s policy meeting.”

RBC economist Claire Fan also said she believes another quarter-point hike is in the cards next week, but added the end of the current hiking cycle is in sight.

“Inflation pressures are still running above the BoC’s target range, but have shown persistent signs of slowing,” she wrote in a note.

With December’s inflation figures in the books, StatCan also took a look at how 2022 shook out to be a historic year for price pressures in Canada.

The overall average for inflation in the year clocked in at 6.8 per cent — double the 3.4 per cent rate seen in 2021.

Inflation ratcheted up through the first half of 2022 before the headline figure peaked at 8.1 per cent in June and has eased gradually since.

StatCan said the price pressures were “broad-based,” with the biggest jumps for transportation (up 10.6 per cent), food (up 8.9 per cent) and shelter (up 6.9 per cent).

Energy prices were up 22.5 per cent overall in the year, driving much of the inflation Canadians faced in 2022.

Grocery prices were up an average of nearly 10 per cent through 2022, according to the agency, the fastest annual pace seen since 1981.

Prices were up annually in almost every food category except for canned salmon, which was down 1.4 per cent on the year, according to StatCan.

Extreme weather, higher input costs and supply chain disruptions, including those tied to Russia’s invasion of Ukraine, were listed as major causes of food inflation this past year.

The average homeowners’ replacement cost and other owned accommodation expenses, which relates to the price of new homes and commissions on real estate sales, respectively, were both up nearly 10 per cent on the year.

Average rent was up 4.6 per cent nationally in 2022, compared with 1.6 per cent a year earlier. The lifting of COVID-19 restrictions and a return to in-person learning as well as rising immigration levels all contributed here, StatCan said.

Services were also a pain point for many Canadians who rushed back to in-person dining and travel after years of COVID-19 restrictions. Travel accommodations, for instance, cost an average of 29.3 per cent more annually in 2022, though Ontario faced a notable increase of 42.7 per cent.

A persistent shortage in the supply of semiconductor chips helped push passenger vehicle prices 7.2 per cent higher in the year. An easing of supply chain shortages helped to cool soaring prices on furniture (up 11.6 per cent) and household appliances (up 9.0 per cent) towards the end of the year, the agency said.