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A Comprehensive Evaluation of Measures of Core Inflation in Canada: An Update

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  • Helen Lao
  • Ceciline Steyn

Abstract

We provide an updated evaluation of the value of various measures of core inflation that could be used in the conduct of monetary policy. We find that the Bank of Canada’s current preferred measures of core inflation—CPI-trim, CPI-median and CPI-common—continue to outperform alternative core measures across a range of criteria. These measures remain less biased, less volatile and much more persistent relative to alternative core measures and CPI inflation. They are also still moving with the economic cycle. Our analysis shows that historical revisions have been relatively small among these three core inflation measures since their inception and that CPI-common seems less prone to revisions and sector-specific shocks than CPI-trim and CPI-median.

Suggested Citation

  • Helen Lao & Ceciline Steyn, 2019. "A Comprehensive Evaluation of Measures of Core Inflation in Canada: An Update," Discussion Papers 2019-9, Bank of Canada.
    • Handle: RePEc:bca:bocadp:19-9
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    References listed on IDEAS

    as
    1. Mikael Khan & Louis Morel & Patrick Sabourin, 2013. "The Common Component of CPI: An Alternative Measure of Underlying Inflation for Canada," Staff Working Papers 13-35, Bank of Canada.
    2. Matteo Luciani & Riccardo Trezzi, 2019. "Comparing Two Measures of Core Inflation: PCE Excluding Food & Energy vs. the Trimmed Mean PCE Index," FEDS Notes 2019-08-02-1, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Guillermo Carlomagno & Jorge Fornero & Andrés Sansone, 2021. "Toward a general framework for constructing and evaluating core inflation measures," Working Papers Central Bank of Chile 913, Central Bank of Chile.
    2. Carlomagno, Guillermo & Fornero, Jorge & Sansone, Andrés, 2023. "A proposal for constructing and evaluating core inflation measures," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(3).
    3. Castañeda, Juan Carlos & Chang, Rodrigo, 2023. "Evaluating core inflation measures: A statistical inference approach," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(4).

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    More about this item

    Keywords

    Inflation and prices; Monetary policy framework;

    JEL classification:

    • 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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