The Rise (And Fall?) of Inflation in Canada: A Detailed Analysis of Its Post-Pandemic Experience

Abstract

Canada's inflation rate rose to generational highs in 2022. We explore this rapid surge. Using
new methods and detailed household consumption data, we separately identify demand- and
supply-driven price increases. We find the latter accounts for most of inflation's rise—especially
among energy-intensive and highly traded items. In addition, we find items with normally
transitory price changes or those highly sensitive to interest rates account for nearly all the
increase. Our work sheds important new light on recent inflation trends and illustrates new
empirical methods that can add value to inflation monitoring efforts in Canada.

Keywords: inflation, supply shocks, monetary policy

JEL Classification: E31, E58, E65