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

Author

Listed:
  • Philippe Bergevin

    (C.D. Howe Institute)

  • Colin Busby

    (C.D. Howe Institute)

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.

Suggested Citation

  • Philippe Bergevin & Colin Busby, 2011. "Core, What is it Good For? Why the Bank of Canada Should Focus on Headline Inflation," e-briefs 124, C.D. Howe Institute.
    • Handle: RePEc:cdh:ebrief:124
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    File URL: https://www.cdhowe.org/public-policy-research/core-what-it-good-why-bank-canada-should-focus-headline-inflation
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    References listed on IDEAS

    as
    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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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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