Canada’s inflation rate rose to 3.4% in December, Statistics Canada reports.

The rise came after the consumer price index held steady at 3.1% in November. The increase likely has implications for interest rates, according to analysts.

The Bank of Canada is seeking to cool demand and return inflation to its 2% target before introducing interest rate cuts that are anticipated this year. Tiff Macklem, the central bank’s governor has sent mixed signals on how soon interest rate reductions could begin.

Most analysts surveyed by Reuters and other groups had expected inflation to rise to 3.4%, which was in line with U.S. increase in December. But accelerating underlying pressures still caused concern.

“The pick-up in underlying inflation pressures raises the risk that the Bank of Canada will need to keep interest rates higher for longer than markets are now pricing in, with the economy suffering further as a result,” wrote Desjardins analyst Royce Mendes in a note excerpted in the Globe and Mail.

BMO Capital Markets Chief Economist Douglas Porter and TD Economics Senior Economist Leslie Preston said in separate notes that the CPI increase demonstrates that the last mile, or kilometre, to the 2% destination is the hardest.

“If you are looking for data to signal a rate cut is imminent, this isn’t it,” wrote Preston.

Gasoline price increases constituted the headline acceleration in inflation, said StatCan. In December, gas prices rose 1.4% year-over-year after falling 7.7% year-over-year in November.

“This was the result of a base-year effect where gasoline prices fell more on a monthly basis in December 2022 than they did in December 2023,” said StatCan.

Residential rents contributed to the acceleration as they rose 7.7% year-over-year in December, the federal agency added. Rents in B.C. (8.6%), Ontario (6.9%) and Quebec (6.8%) contributed the most to the increase.

The BoC will make its next interest-rate decision on January 24.

(Pictured: Bank of Canada Governor Tiff Macklem)