e -Brief

All that being said, achieving a year-over-year change in the CPI of 2 percent is the official target of the Bank of Canada, so understanding the underlying components of this index is relevant. [...] The most substantial contributor to the recent decline in the pace of CPI growth is clearly energy, in sharp contrast to its status as the leading contributor to inflation in the previous year. [...] To quantify the contribution of each type of price change to the year-over-year change in the PCE price index, we simply add up the changes measured for the most recent four quarters. [...] We find demand-driven price changes account for 0.9 of a percentage point of the increase in PCE inflation for the year to the second quarter of 2023, and supply-driven changes account for two percentage points. [...] Given the persistence of supply-side price pressures, the Bank of Canada should continue to implement a robust tightening of monetary policy to counteract the effects originating from the supply side and to preserve well-anchored inflation expectations.