OTTAWA -- The first increase in annual inflation since its June 2022 peak was driven in part by higher mortgage interest costs and higher rent prices, Statistics Canada said Tuesday.

Mortgage interest costs were up 28.5 per cent in April compared with a year ago as a result of the Bank of Canada raising interest rates at a breakneck pace over the past year. That's up from 26.4 per cent in March and 23.9 per cent in February.

Meanwhile, inflation for rent was 6.1 per cent year over year, up from 5.3 per cent in April.

That's despite overall shelter costs rising at a slower pace in April, at 4.9 per cent.

The year-over-year increase in the homeowners' replacement cost index also slowed for the 12th consecutive month, which Statistics Canada says reflects a general cooling of the housing market.

A report by RBC Economics says shelter was the largest contributor to headline inflation in April, accounting for a third of the growth.

The central bank's interest-rate hikes have come full circle, feeding back into inflation even though other key drivers like commodities have been coming back down, said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a note.

However, RBC said year-over-year mortgage interest costs are expected to start slowing because of the central bank's pause on interest rate hikes.

But as for rent, high demand for rental housing could keep prices up. A March report by RBC said Canada's shortage of rental housing could quadruple by 2026, and the fierce demand for rental units has been driving record rent increases.

This report by The Canadian Press was first published May 16, 2023