The annual inflation rate in Canada rose by 3.4 percent in December, which largely reflects a sharp decline in gasoline prices a year ago compared to last month.

The federal agency issued the Consumer Price Index report on Tuesday, which showed inflation rising from 3.1 percent in November.

Economists widely expected this increase due to the base year effect, which refers to how last year’s price movements impact the overall inflation calculation.

Grocery prices rose by 4.7 percent in December compared to last year, matching the pace of increase in November.

With December being the last month of the year, Statistics Canada says the average annual inflation rate for 2023 was 3.9 percent. This is lower than the 40-year high of 6.8 percent in 2022.

The federal agency said price growth in 2023 slowed in six out of eight components of the Consumer Price Index compared to the previous year.

As the Bank of Canada prepares to announce the interest rate next week, it will pay special attention to core inflation measures, which help the central bank see fluctuations in price movements. These annual measures were not eased last month.

The Bank of Canada is widely expected to keep the key interest rate at five percent, as most economists are convinced that interest rates are high enough to suppress inflation. However, the timing of the first rate cut is expected to be driven by how quickly inflation falls and how much the economy slows down this year.