3. CAnada public finances_Inflation standalone

Since 1991, the Bank of Canada has maintained a 2.0 % inflation goal (within a 1.0 %–3.0 % limit) which it had broadly met, with small exceptions (e.g. during the global financial crisis), until the COVID-19 pandemic. Once the pandemic was over, the rapid increase in demand following a year and a half of reduced spending, supply chain bottlenecks and high global commodity prices pushed inflation above the 2021 limit to a peak of 8.1 % in June 2022. The Bank of Canada responded by incrementally increasing its interest rate from 0.25 % in March 2022 to 5.00 % in July 2023. Inflation finally fell within the 3 % range in May 2024 (see Figure 4). However, while the bank’s intervention tamed inflation, it also added pressure to the real estate market, construction activity and the wider economy.