The national inflation rate cooled to an annual rate of 0.7% in December, pushing down the average monthly inflation rate for 2020 to similarly slight levels.
In its latest report, Statistics Canada said these readings made 2020 the weakest year for inflation since 2009, when the average rate set a record low of 0.3%, despite the economy exhibiting a healthy pace of recovery over the past few quarters. Much of the slack, however, could be attributed to weakness in the petrochemical industry; StatsCan reported that excluding oil and gas, the annual pace of inflation last month was 1%.
“Inflation is muted in Canada and still very much bearing the scars of the health and economic crisis,” said James Marple, economist at TD Bank. “As the worst point in the crisis moves further into the rear-view mirror, price growth will pick up. Driven by rising energy prices, the headline rate is likely to hit 2% by the second quarter of this year.”
Marple’s forecast mirrored the recent recovery projections by the Bank of Canada, which projected economic growth to accelerate to 4% in 2021 and approach 5% next year, before settling at the more moderate pace of 2.5% by 2023.
Mass COVID-19 vaccinations have “pulled forward the timeline for achieving broad immunity and improved the outlook for growth in the medium term,” said the BoC last week. “Suppressed spending from containment restrictions in one quarter is likely to be followed by a bounce in another quarter after measures are eased. The choppiness should diminish over time as the share of the immunized population increases and economic momentum becomes more sustained.”