Canada's inflation rate is expected to fall significantly this year. Here's why

After a steep and rapid climb in prices, Canada's inflation rate is expected to fall significantly this year, giving comfort to economists worried about untamed price growth but little relief to Canadians who have fallen behind.

After a steep and rapid climb in prices, Canada's inflation rate is expected to fall significantly this year, giving comfort to economists worried about untamed price growth but little relief to Canadians who have fallen behind.

Inflation, which first began creeping higher in 2021, took off dramatically last year and peaked at 8.1 per cent in the summer.

That's well above the two per cent inflation target the Bank of Canada is supposed to maintain.

The run-up in prices was sparked by what Desjardins' chief economist Jimmy Jean called a "perfect storm" -- the reopening of economies after COVID-19 restrictions, the Russian invasion of Ukraine and the disruptions in supply chains.

As that storm continues to dissipate, price pressures have relented, giving glimmers of hope that normalcy in price growth may be restored.

Those glimmers are now more apparent in the data. Statistics Canada reported earlier this week that the headline inflation rate fell last month to 5.9 per cent from 6.3 per cent in December, a decline that can be explained by a "base-year effect."

A base-year effect refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.