Definition
The Bank of Canada's primary mandate is to maintain inflation at the 2% target (midpoint of a 1-3% band), as measured by the all-items Consumer Price Index (CPI).
**Inflation measures tracked**: - **All-items CPI**: official measure, includes energy and food - **Core CPI (trimmed mean, common component, median)**: 3 underlying inflation measures used by the BoC to filter short-term volatility
**Agreement renewal**: The inflation targeting agreement is renewed every 5 years between the BoC and the federal government (last renewal: 2021, target maintained at 2%).
**Transmission to mortgage rates**: 1. CPI > 3% → BoC raises policy rate → variable rates rise immediately, fixed rates rise with a lag 2. CPI < 1% → BoC lowers policy rate → variable rates fall, fixed rates follow bond yields 3. CPI anchored at 2% → BoC can maintain stable rates → predictable environment for borrowers
**Impact on renewals**: Borrowers renewing a mortgage during a period of inflation overshoot face higher rates than at their last term — a phenomenon amplified during the 2022-2023 cycle.