The annual pace of inflation slowed in December compared with November as gains in the price of gasoline eased up, Statistics Canada said Friday.

The agency said the consumer price index for the final month of 2017 was up 1.9% compared with the same month a year earlier. That compared with a reading of 2.1% in November. Excluding gasoline, prices were up 1.5% on an annual basis in December, matching the increase in November.

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Brian DePratto, senior economist for TD Economics, suggests looking past the pullback in the annual pace of inflation, in his commentary. “Looking past the energy-led deceleration in inflation,” he says, “hot growth of the Canadian economy in 2017 now appears to be turning into somewhat hotter price growth.”

He predicts the Bank of Canada will likely be comforted by both its decision to hike rates earlier this month as well as the fact that “the growth-inflation nexus remains intact […].”

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“Risks and uncertainty may result in increased caution, but, ultimately, achieving the inflation control target will require further monetary tightening,” says DePratto. “We remain of the view that the balance of risks versus fundamentals favours the next rate hike falling in July.”

In a research note, CIBC’s Nick Exarhos also says he isn’t fazed by either the headline drop in inflation or the dip in the annual rate. “Two out of three core metrics edged higher on the month, and have—on average—closed the gap with the Bank of Canada’s 2% target,” he explains. 

The details

Prices were up in seven of the eight major categories as the transportation index, which includes gasoline, and the shelter group led the way.

Transportation prices were up 4.9% from a year ago compared with a 5.9% increase in November. Gasoline, a key component of the group, climbed 12.2% compared with a year earlier following a 19.6% increase in November.

The shelter index climbed 1.4% compared with a year ago as natural gas prices rose 6.2% following a 3.1% increase in November.

Meanwhile, the household operations, furnishings and equipment index fell 0.3% compared with a year ago as the cost of telephone services slipped 5%.

Two of the Bank of Canada’s three preferred measures of core inflation, designed to look through the noise of more volatile items like gasoline, ticked higher last month.

CPI-trim—which helps filter out extreme price changes—rose to 1.9% from 1.8% in November, while CPI-common, which filters out prices that changed due to extraordinary circumstances, climbed to 1.6% from 1.5%. CPI-median was unchanged compared with November at 1.9%.

The Bank of Canada raised its key interest target last week by a quarter of a percentage point to 1.25%.

The central bank aims to keep inflation at 2%, the midpoint of a target range of 1% to 3% over the medium term.

In raising its trendsetting rate, the Bank of Canada pointed to unexpectedly solid economic data as key drivers behind the decision. It was the third rate increase since last summer.

Read: Rising rates have Canadians worried about paying bills

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