A new report from the Bank of Canada has found that the rising cost of living and unclear communication on inflation have eroded public trust in both the Consumer Price Index (CPI) and the central bank itself. The 54-page What We Heard report, published on Thursday, summarizes consultations with stakeholders and Canadians ahead of the monetary policy framework renewal later this year.
Consultations reveal widespread disconnect
The report covers talks with 30 stakeholders, including academic researchers, think tanks, business groups, unions, and private sector economists. Additionally, discussions with 198 Canadians across 11 cities revealed widespread concern about the cost of living. Many participants indicated that the CPI did not align with their lived experiences, according to the report.
Participants believed the headline inflation figure was low and questioned what was included in the basket of goods and services used by Statistics Canada to calculate the CPI. Many also found the concept of core inflation difficult to grasp, despite receiving multiple explanations and examples. Participants largely viewed energy and food as essential goods and disagreed with excluding them from core inflation measures, creating confusion about the central bank's two per cent headline inflation target and the data used for monetary policy decisions.
Trust eroded by data disconnect
“The disconnect between official inflation data and Canadians’ daily experiences led to diminished trust in the CPI — and, by extension, in the Bank — because the data are used to make interest rate decisions,” the report stated. Some stakeholders questioned whether the Bank considers affordability concerns when setting monetary policy.
The report comes after Canadian inflation accelerated to 3.2 per cent in May, the highest headline inflation rate since December 2023. This acceleration was primarily driven by rising gasoline prices due to the war in Iran, as well as higher grocery prices.
Support for inflation target remains
Despite the erosion of trust, participants expressed strong support for maintaining the headline inflation target at two per cent and the flexible inflation-targeting regime. They said these are easy to understand and provide stability to the Canadian public and financial markets.
However, many stakeholders suggested that the Bank of Canada should publish a dashboard of inflation indicators using plain language, with explanations of how each indicator is used. This would help Canadians understand complex information more easily, the report noted.
External criticism of communication
The Bank of Canada's report follows a separate report by the C.D. Howe Institute, which said the central bank's communication around monetary policy decisions is too technical for the general public to understand and places too much emphasis on core inflation. The Bank's own consultations echoed this sentiment, highlighting the need for clearer, more accessible communication to rebuild trust.
