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“Given its huge 30% weighting within the CPI [consumer price index] basket, this component [shelter] alone has accounted for more than half of overall Canadian inflation,” TD director and senior economist James Orlando said in a note following the release of the latest CPI figures.

Shelter inflation, he added, has become “the biggest hurdle” preventing the Bank of Canada from cutting rates – and with the central bank largely powerless to bring shelter prices down immediately, Orlando said it could “start looking past” the influence of shelter inflation.

“As long as the BoC continues to focus on inflation metrics which are being held up by shelter inflation, Canadians will suffer under the weight of high interest rates,” he wrote.  

Could the Bank of Canada focus on other inflation measures?

Orlando said the influence of shelter costs had kept underlying inflation measures higher in Canada than other major economies, and that using the US Federal Reserve’s preferred inflation metric would actually adjust Canada’s inflation rate to just above the 2% mark.

“What’s interesting is that if we calculate Canadian inflation using the same weights as the Fed’s preferred metric, Canadian inflation would be at just 2.1% [year over year],” he said.

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