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Economic Viewpoint

How Will the GST/HST Holiday Impact Canadian Inflation?

January 14, 2025
Randall Bartlett
Deputy Chief Economist
  • In mid-December 2024, the Government of Canada introduced a two-month GST/HST holiday on a select group of consumer goods and services, which comprise as much as 12% of the total Consumer Price Index (CPI) basket.
  • Depending on the assumptions used, the level of total CPI could be reduced by anywhere from 0.1% to 1.1% in January 2025—the only full month of the tax holiday. We’ve assumed this measure will reduce the level of CPI in the first month of 2025 by 0.6%—the average of our estimates—as not all the savings are likely to be passed on to consumers.
  • We expect total CPI inflation to fall from 2.4% to 1.8% y/y in January 2025 because of the GST/HST holiday. This is modestly above the “around 1½%” forecast that accompanied the Bank of Canada’s December 2024 interest rate announcement.
  • We now expect total CPI inflation for the first quarter of 2025 to come in at 2.2%. But the lower base effects in early 2025 will push the reported year-over-year inflation rate higher in early 2026, and this may be further exacerbated by tariff-induced higher import prices.
  • Given the temporary nature of the GST/HST holiday and its modest impact on inflation, we expect the Bank of Canada to look through it when deciding on the level of interest rates. That said, if interest rates continue to decline in line with our forecast, a short-lived resurgence in inflation in early 2026 could pose a communications challenge for the Bank of Canada.
NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.