Charts of the Week: Inflation after the fact

Inflation is a tricky concept because the inflation rate can (and often does) go down without actual prices doing the same. For example, the national monthly inflation rate (measured as the percentage change in the price of a fixed basket of consumer goods and services compared to 12 months earlier) has fallen from a peak of 8.1% in June 2022 to 1.9% in June 2025. The actual price of the basket of goods and services, however, went up over the same period by 7.5%. If you compare prices today to June 2021 before inflation was running rampant, they are 16% higher.

For the price of the basket to go down, the inflation rate would have to be negative (deflation) and that has only happened twice in the last 10 years (in April and May 2020 at the front end of the pandemic).

Consumer price growth is a normal part of our economy and only becomes an overarching problem* when it rises above the upper end of the Bank of Canada’s target range of 1% to 3%. Given this, the return of the national inflation rate to the target range is excellent news. But, because the monthly inflation rate was above 3% for almost three years, the cumulative growth in prices was unusually high and gave the economy a nasty hangover that many households are still feeling. We can see evidence of this in our Chart of the Week. The gap between where price levels are and where they would have been if inflation had stayed under control is what we feel when we are out shopping. A smaller gap would mean more money on hand for other spending and/or saving.

*Even an inflation rate within the target range can be a problem if your household’s income is not growing at a similar or better rate.