In looking at the key drivers behind inflation’s path in Canada, the C.D. Howe Institute has published its most recent monetary policy report, wherein the think tank examines the rise and fall of the Consumer Price Index (CPI) inflation in Canada, inflation figures in the United States and Europe, the impact higher interest rates are having on demand and looks in depth at the differences between supply and demand-driven price increases.
In Canada, they point out that the headline CPI inflation figure rose 8.1 per cent at the end of June 2022, declining to 2.8 per cent by June 2023. In the United States, consumer price growth peaked at 9.1 per cent in June 2022 while Europe peaked at 10.6 per cent growth in October 2022.
In Canada, they say most of the decline from these highs can be attributed to the falling price of energy. “Today a greater portion of the remaining price pressures stem from supply-side factors, especially in housing and groceries. It may be necessary for the Bank of Canada to continue implementing a robust tightening of monetary policy to counteract the price pressure from the supply side,” they write.
“We find that most of inflation’s recent fall is accounted for by energy prices. This is neither novel nor surprising,” they add. “We find little evidence of wage-driven inflation.” Mortgage costs also contributed nearly a full percentage point to Canada’s overall annual rate of CPI growth, they state.