Canada's Inflation Dips Amid Tax Break Relief

Canada's inflation rate falls to 1.8% in December, aided by a sales tax break which reduced prices of alcohol, restaurant food, and children's clothing. This decrease may lead to further rate cuts by the central bank, while the Canadian dollar trades weaker.

In December, Canada's inflation rate saw a decrease to 1.8%, driven mainly by a sales tax break that began mid-month, resulting in lower prices for alcohol, restaurant meals, and children's attire, according to data released on Tuesday.

This drop was slightly unexpected, coming below the 1.9% forecasted by analysts and easing from the previous month's 1.9%. Monthly, the Consumer Price Index showed a 0.4% decline. Yearly, alcohol prices at retail outlets fell by 1.3%, compared to a 1.9% rise in November, and food prices at restaurants decreased by 1.6%, following a previous increase of 3.4%.

With inflation remaining under the Bank of Canada's 2% target since August, policy interest rates have been slashed by 175 basis points since June, now at 3.25%. The recent inflation drop could accelerate interest rate cuts, as market speculation hints at a possible reduction on January 29.

(With inputs from agencies.)