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Pulse check: Measuring underlying inflation and its drivers

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  • Luis Uzeda

Abstract

This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. We find that broad-based inflationary pressures account for most underlying inflation, while sector-specific factors—particularly shelter—have become more inflationary since 2021. Unlike CPI-common, PULSE is less prone to large historical revisions and maintains a strong correlation with economic slack.

Suggested Citation

  • Luis Uzeda, 2025. "Pulse check: Measuring underlying inflation and its drivers," Staff Analytical Notes 2025-29, Bank of Canada.
    • Handle: RePEc:bca:bocsan:25-29
    DOI: 10.34989/san-2025-29
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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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