Introduction to the Bank of Canada’s Inflation Measures
The Bank of Canada has been assessing its methods for measuring inflation, focusing on core consumer price inflation, which excludes more volatile components like gas and food prices. In a recent speech, Deputy Governor Rhys Mendes explained that the bank’s preferred gauges, CPI-trim and CPI-median, show yearly price pressures around 3%. However, the bank believes that underlying inflation is closer to its 2% target, around 2.5%.
The Bank’s Approach to Measuring Inflation
Mendes emphasized that the bank doesn’t want Canadians or markets to be overly focused on a single indicator. The bank has been weighing a broader suite of gauges, which suggest that underlying price pressures are closer to the 2% target. The comments are part of a series of remarks by policymakers that have de-emphasized the two preferred core metrics.
Changes in the Bank’s Inflation Measures
The Bank of Canada lowered its benchmark policy rate to 2.5% in September, amid evidence that the tariff dispute with the U.S. had struck the economy and jobs market. At that time, the bank said it also saw upward momentum on inflation had dissipated. The bank plans to review how it measures inflation in the upcoming framework renewal in 2026.
Future Developments in Inflation Measurement
As part of its review, the bank is considering whether to revise inflation gauges to pre-exclude mortgage interest costs. This is because changing borrowing costs can obscure the broader response of inflation to changes in the policy rate. The bank is also looking at incorporating artificial intelligence and multivariate core trend inflation.
Expert Opinions on the Bank’s Approach
Dominique Lapointe, an economist with Manulife Asset Management, noted that adding more inflation measures could make it more difficult for the general public and market participants to understand how the bank sees inflation. He pointed to countries like the US, where the Federal Reserve tends to limit inflation analysis to headline yearly changes and inflation excluding food and energy.
Conclusion
The Bank of Canada’s approach to measuring inflation is evolving, with a focus on broader assessments of price changes rather than particular gauges. By considering a range of measures and revising its approach, the bank aims to provide a more accurate picture of underlying inflation. As the bank continues to review and refine its methods, it is likely that its approach to inflation measurement will continue to change and adapt to new economic conditions.
