The Globe and Mail reports in its Thursday, July 1, edition that the Bank of Canada has been trying to understand the sharp divergence among its core inflation measures and assess their usefulness. The Globe's David Parkinson writes that the BOC is taking the problem very seriously. It acknowledged in April that the measures were susceptible to distortions brought on by the unique and sudden nature of the pandemic.
Mr. Parkinson says understanding underlying inflationary pressures is critical to the timing of monetary policy tightening during the recovery phase.
In the current context, the BOC has had to look beyond its three preferred measures in assessing core inflation.
The BOC said in April that alternative measures "may provide additional useful insights into the assessment of underlying inflation." Scotiabank published a paper last week suggesting that the BOC's past quest for more sophisticated core-inflation measures may have been misguided. Scotiabank's research found that a simple measure of CPI excluding food, energy and indirect taxes does a better job of revealing underlying inflationary pressures than the BOC's three preferred gauges do, both individually and in combination.
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