At 0.7%, 2020 was the weakest year for inflation since 2009, StatsCan says

(Daniel Ochoa de Olza/The Associated Press)

Canada's inflation rate cooled to an annual rate of 0.7 per cent in December, down from an already low 1 per cent the month before.

Statistics Canada reported Wednesday that the consumer price index came in at an annual rate of 0.7 per cent for the month, which was also the average monthly inflation rate for the year as a whole.

That means 2020 was the weakest year for inflation since the financial crisis of 2009, when the average inflation rate was just 0.3 per cent.

The inflation rate is the biggest factor that the Bank of Canada considers when setting its benchmark interest rate. The bank likes to see an inflation rate of between one and three per cent. All things being equal, the bank cuts its rate to stimulate the economy when the inflation rate is too low, and it raises its benchmark lending rate when it wants to cool things down when inflation is too high.

2020's numbers show that inflation is far from a pressing concern. "Inflation is muted in Canada and still very much baring the scars of the health and economic crisis," TD Bank economist James Marple said. "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 per cent by the second quarter of this year."

Price of gas dragged rate lower

Prices rose in six of the eight major components on a year-over-year basis in December.

Excluding gasoline, the annual pace of inflation in December was 1.0 per cent compared 1.3 per cent in November.

The average of Canada's three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 1.57 per cent for December, down from 1.67 per cent in November.