The Bank of Canada should place less emphasis on the “core” Consumer Price Index (CPI) in explaining its policy choices, according to a report released today by the C.D. Howe Institute. In, “Core, What is it Good For? Why the Bank of Canada Should Focus on Headline Inflation,” authors Philippe Bergevin and Colin Busby say that core CPI, an inflation measure which strips out from the consumer price basket some of the most volatile items and which the Bank uses as an operational guide, has diverged from total CPI and may give misleading signals about future inflation.
“The Bank should consider relying less on core CPI as a guide to future inflation,” stated Philippe Bergevin. “Our analysis shows it is only one of many imperfect measures of underlying inflation.”
