The Bank of Canada has cautioned that traders may be placing excessive importance on its ‘preferred’ core inflation measures. The bank indicated it is considering a wider range of indicators that suggest underlying price pressures are closer to the 2 per cent target. Deputy Governor Rhys Mendes outlined how the central bank assesses core consumer price inflation, which excludes volatile components such as gas and food.
Mendes stated that the bank’s preferred gauges, CPI-trim and CPI-median, show yearly price pressures around 3 per cent, but reiterated that the bank sees underlying inflation ‘in the vicinity of 2.5 per cent’. He clarified that this is not intended as a precise estimate. Mendes suggested that labeling the measures as ‘preferred’ may have led markets to overemphasise them, and the bank does not want Canadians or markets to be overly focused on a single indicator.
These comments follow a series of remarks by policymakers that have de-emphasised the two preferred core metrics. When setting interest rates, the central bank has stressed its focus on broader assessments of price changes rather than specific gauges. The bank plans to review its inflation measurement methods in the upcoming framework renewal in 2026, but has stated that it does not intend to revise its 2 per cent target for the yearly change in the consumer price index.
Mendes also mentioned the bank is considering revising inflation gauges to pre-exclude mortgage interest costs, as changing borrowing costs can obscure the broader response of inflation to changes in the policy rate. The bank is also exploring incorporating artificial intelligence and ‘multivariate core trend inflation’ into its assessments.
