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Core, What is it Good For? Why the Bank of Canada Should Focus on Headline Inflation

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  • Philippe Bergevin

    (C.D. Howe Institute)

  • Colin Busby

    (C.D. Howe Institute)

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    Abstract

    With inflation as measured by the Consumer Price Index (CPI) growing faster than the Bank of Canada’s 2 percent target, the Bank has pointed out that core CPI, which excludes items whose prices are especially volatile, is at or below target and, further, that the Bank anticipates total CPI eventually will converge with the core measure. While the Bank is certainly justified in using core CPI as one of many imperfect measures of underlying inflation, our results suggest that the Bank should, at a minimum, revisit the role of core within its inflation-targeting framework and consider de-emphasizing core CPI in its communications or as an operational guide.

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    File URL: http://www.cdhowe.org/pdf/ebrief_124.pdf
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    Bibliographic Info

    Paper provided by C.D. Howe Institute in its series e-briefs with number 124.

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    Length: 9 pages
    Date of creation: Sep 2011
    Date of revision:
    Publication status: Published on the C.D. Howe Institute website, September 2011
    Handle: RePEc:cdh:ebrief:124

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    Related research

    Keywords: Monetary Policy; Bank of Canada; inflation; Consumer Price Index (CPI); core CPI;

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    1. Tiff Macklem, 2001. "A New Measure of Core Inflation," Bank of Canada Review, Bank of Canada, vol. 2001(Autumn), pages 3-12.
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