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By one measure of inflation, the pace of consumer price growth is fading quickly and nearing the Bank of Canada’s 2-per-cent target.

Karyne Charbonneau, the executive director of economics at CIBC Capital Markets, has tracked the short-term trend for core inflation, excluding not only energy and food costs, but also those for mortgage interest.

The three-month change in this version of core prices, expressed at an annual rate, was just 2.5 per cent in December, according to Ms. Charbonneau’s estimates. It peaked at 8.6 per cent in May.

When assessing inflation, central bankers and economists will often exclude food and energy costs, which are heavily influenced by international factors outside the central bank’s control.

But in a recent report, Ms. Charbonneau said the Bank of Canada should also “look through” the rapid climb in mortgage interest costs “when judging the underlying inflationary trend.”

There is a good argument for doing this. While the Bank of Canada is raising interest rates to cool demand and tamp down inflation, its efforts are having the opposite effect on mortgage payments.

Over the past year, mortgage interest costs have jumped 18 per cent. This item has a meagre weighting (3 per cent) in how the Consumer Price Index (CPI) is calculated. However, the increase is substantial enough that mortgages are now the largest contributor to annual inflation.

In effect, mortgage interest payments are obscuring some of the progress in bringing inflation to heel.

Canada’s annual rate of CPI growth has ebbed to 6.3 per cent in December from a peak of 8.1 per cent in June. Most of that increase took place during the first half of 2022 – hence why many analysts are tracking short-term changes in consumer prices.

The Bank of Canada expects the inflation rate to fall to 2.6 per cent by the fourth quarter of this year, before returning to the 2-per-cent target in 2024, according to its latest projections.

Decoder is a weekly feature that unpacks an important economic chart.