Inflation, growth of food sales, growth of market basket or consumer price index concept. Shopping basket with foods on arrow.

Canada’s annual inflation rate slowed last month but economists are still expecting the Bank of Canada to hike its key interest rate next week.

In its latest consumer price index released Tuesday, Statistics Canada said the country’s annual inflation rate slowed to 6.3% in December as the cost of groceries remained high and gas prices cooled.

The country’s annual inflation rate peaked in the summer at 8.1% and has been slowly decelerating since. In November, the annual inflation rate was 6.8%.

CIBC’s executive director of economics Karyne Charbonneau said people shouldn’t expect December’s inflation report to stop the Bank of Canada from raising interest rates.

“Inflation came in largely as expected, so don’t think it’s going to change their mind,” Charbonneau said.

The economist expects the strong December jobs report to push the central bank to raise its key rate by a quarter of a percentage point at its next rate announcement on Jan. 25.

Grocery prices were up 11% in December on an annual basis, a slight improvement from 11.4% in November, Statistics Canada said.

Meanwhile, Canadians saw some relief at the pump last month, paying 13.1% less compared with November. The federal agency said the price of crude oil dropped amid concerns of a slowing global economy.

December’s deceleration was also offset by increases in mortgage interest costs, clothing and footwear, and personal care supplies and equipment.

Excluding food and energy, prices rose 5.3% in December on an annual basis.

In a client note, BMO managing director of Canadian rates and macro strategist Benjamin Reitzes said though headline inflation eased, there was little improvement in core inflation.

“While the direction of inflation is at least mildly encouraging, there’s nothing in this report to keep the Bank of Canada from hiking rates another 25 [basis points] at next week’s policy meeting,” Reitzes said.

In addition to headline inflation, the Bank of Canada will also be looking at its preferred measures of inflation, which edged down slightly last month, ahead of its interest rate decision.

The central bank has been aggressively raising interest rates since March, hiking seven consecutive times in response to decades-high inflation. Its key interest rate is currently 4.25%, the highest it’s been since 2008.

Canada’s average inflation rate for 2022 was 6.8%, a 40-year high, Statistics Canada said in Tuesday’s report. The average inflation rate was 3.4% in 2021.

Rising energy prices contributed significantly to high inflation last year as consumers paid 28.5% more for gasoline in 2022 on an average annual basis.

Though much of high inflation has been driven by energy prices, the Canadian economy saw a broadening of inflation pressures in 2022.

Grocery prices were up 9.8%, marking the fastest pace since 1981.

The federal agency said prices for durable goods were up 6.2% while prices for services rose 5%.