Canada's December CPI surprised to the upside ❓🏛️

Canada CPI NSA (M/M) Dec: -0.2% (est -0.3%; prev 0.1%)

- CPI (Y/Y): 2.4% (est 2.2%; prev 2.2%)

- CPI Core - Median (Y/Y): 2.5% (est 2.7%; prev 2.8%)

- CPI Core - Trim (Y/Y): 2.7% (est 2.7%; prev 2.8%)

Canada's December CPI surprised to the upside at 2.4% year-over-year, exceeding expectations of 2.2%, driven primarily by soaring food costs and resilient restaurant prices signaling persistent service-sector inflation despite cooling goods categories. Core inflation metrics showed improvement, with both CPI median and trim edging down to 2.5% and 2.7% respectively, suggesting underlying price pressures are moderating—a positive signal for the Bank of Canada's disinflation narrative. The surprise headline beat, combined with month-over-month deflation of -0.2%, masks a troubling bifurcation: while tradable goods face deflationary pressure, non-tradable services and food remain sticky, with grocery prices up 5.0% year-over-year and frozen beef surging 17.7%.

For the Bank of Canada, this report reinforces a mixed outlook that complicates rate-cut decisions; headline inflation remains above the 2% target, and robust restaurant price growth evidences strong consumer demand, arguing against aggressive easing. The technical benefit from GST/HST changes falling out of the year-over-year calculation masks underlying stickiness in shelter and food, keeping medium-term inflation risks alive and likely pushing BoC toward a more cautious stance than market pricing had anticipated. This should support the Canadian dollar near-term, as expectations of sustained elevated rates relative to other central banks become more plausible; markets may recalibrate rate-cut odds downward, underpinning CAD through reduced rate differential compression with the USD.

The USDCAD pair holds the intraday downowrd trend after the publication.