TORONTO, June 26, 2026 – The Bank of Canada released a public consultation report on its monetary policy framework on June 25 to inform the Bank and the federal government as they update their five-year monetary policy agreement by the end of 2026. The consultation found that most participants supported maintaining the flexible inflation-targeting framework and the two per cent inflation target. However, many residents said the official Consumer Price Index does not reflect their actual experience of buying food, paying rent, making mortgage payments and covering other daily expenses. Mortgage borrowers monitoring interest rate changes, renters, low-income families and seniors on fixed incomes should note that the consultation will not immediately change interest rates or the inflation target. The final framework is expected to be determined by the end of this year.
Canada’s current monetary policy framework centres on a two per cent inflation target and allows inflation to fluctuate within a range of one to three per cent. The framework is jointly established by the Bank of Canada and the federal government and is reviewed every five years. The Bank mainly uses changes to its policy interest rate to influence borrowing, spending and investment, with the aim of returning inflation to target over the medium term.
The Bank said members of the public and stakeholders who participated in the consultation generally recognized that stable inflation provides households and businesses with greater certainty when making spending, saving, borrowing and investment decisions. Most supported keeping the current two per cent target. However, the cost of living and housing affordability repeatedly emerged as concerns in consultations across the country.
The report said residents participating in community consultations in different regions consistently expressed concern about living costs. Many believed the Consumer Price Index did not match the price changes they saw while shopping and questioned whether the basket of goods and services used by Statistics Canada to calculate inflation accurately reflected the actual spending of individual households.
Food prices were among the most frequently raised concerns. Although the overall inflation rate has fallen from its 2022 peak and returned to the one-to-three per cent target range, prices for food, housing and other essentials remain significantly higher than before the pandemic. Some residents therefore said the decline in the official inflation rate had not led to a noticeable reduction in their financial burden.
Lower inflation does not mean the prices of goods and services have returned to previous levels. It means prices are rising more slowly. For example, after an item’s price increases sharply, a later annual increase of two per cent may still leave consumers paying considerably more than they did several years earlier. This is an important reason some residents continue to feel that the cost of living is high even though the official inflation rate is close to target.
Differences in household spending patterns also affect how inflation is experienced. Renters, mortgage holders, low-income families, residents of remote areas and seniors spend different proportions of their income on essentials such as food, housing, transportation and health care. As a result, they may face price pressures that differ from those represented by the national average consumer basket.
The report also noted that some Indigenous participants believed standard inflation measures do not fully reflect the cost pressures facing Indigenous communities. In areas with limited transportation alternatives, for example, residents may have to pay higher costs for travel and the transportation of goods.
Housing was another major issue raised during the consultation. Younger participants commonly expressed concern about rising home prices and rents, with some saying they had given up expecting to own a home in the future. Some seniors were concerned that changing home values could affect their retirement assets, while also finding it difficult to downsize because smaller homes were either unavailable or too expensive.
The Bank said monetary policy can affect housing demand and borrowing costs through interest rates, but it cannot directly increase the housing supply. Issues such as development approvals, land use, infrastructure and residential construction are primarily the responsibility of different levels of government and other policy authorities.
The treatment of housing costs in inflation measures also generated discussion. Some organizations argued that existing housing inflation measures may disadvantage younger people. Most economists who participated in the consultation supported continuing to include mortgage interest costs in the Consumer Price Index because mortgage expenses are a significant real-life cost for many households.
Bank of Canada interest rate decisions directly affect variable-rate mortgages, lines of credit and other borrowing costs, and gradually influence fixed-rate mortgage renewal rates. However, the Bank does not adjust policy immediately because of an increase in a single product price, rent or home price. It considers overall inflation, economic growth, employment, wages, and domestic and international risks together.
The Bank said supply chain disruptions, trade tensions, extreme weather, demographic changes and the energy transition could make supply shocks more frequent in the future. In such situations, raising interest rates may reduce overall demand but cannot directly increase the supply of affected goods. The Bank must therefore balance controlling inflation with avoiding excessive damage to the economy.
The report also found that the public wants the Bank to explain more clearly which data it uses when making interest rate decisions, which problems monetary policy can address, and which cost-of-living pressures require other public policy responses. Some consumer and business groups also suggested that the Bank should respond more directly to the actual circumstances facing households and small and medium-sized businesses when communicating inflation and interest rate information.
The report has been submitted to the Bank of Canada’s Governing Council and the federal Department of Finance. The Bank will consider public feedback alongside economic research as part of its review of the monetary policy framework and will release the updated agreement by the end of 2026.
Until the new agreement is formally released, Canada will continue using the two per cent inflation target and the one-to-three per cent control range. The consultation findings will not by themselves lead to an immediate change in the policy interest rate and do not mean the Bank has decided to alter the existing inflation target.（LJI by Yuanyuan）
