Bank of Canada consultations back 2% inflation target, flag affordability concerns

By Promit Mukherjee

OTTAWA, June 25 (Reuters) - ‌The Bank ​of Canada's ​consultation on its monetary policy framework review found broad support for its 2% inflation target, but participants complained about the ‌disconnect between official inflation data and actual price of goods, the ⁠bank said in a report on Thursday.

The cost of living crisis is a challenge for ‌Prime Minister Mark Carney who ‌pledged to tackle affordability after his party won a parliamentary majority in April.

"Canadians in all communities the Bank visited expressed concern with the cost ​of living," the bank said in the report.

"Many indicated that the consumer price index (CPI) did not align with their experience or with what ⁠they see when they shop," it said,

The disconnect between official inflation data and daily experiences led to ​diminished trust in the CPI number, and, by extension, in the central bank, the report said.

Canada's annual inflation rate in ​May accelerated to 3.2%, the first time in ‌nearly two and a half years that headline inflation moved outside the BoC's 1%-3% target range as the impact ⁠of higher crude oil prices due to the Iran conflict continued to filter through to gasoline costs.

Governor Tiff Macklem said earlier this week that while food prices were ⁠a concern, the current spike in inflation was largely concentrated in gasoline costs.

The central bank ​and the finance ministry jointly review the target every five years and formally announce a decision, with the next review set for this year.

Young Canadians who participated in the ‌consultations said they have largely abandoned hope of ever owning a home. They dismissed the central bank's explanation that housing ‌affordability falls beyond its mandate, the bank said.

While some economists called for greater ⁠emphasis on rent inflation in ‌the BoC's research and communication, ​most economists argued to keep mortgage interest costs as part of the consumer price index.

(Reporting by Promit Mukherjee; Editing by ‌Caroline Stauffer)

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