Erik Hertzberg
(Bloomberg) – Bank of Canada warns that traders may overemphasize their “preferred” core inflation measures, saying it weighs a broader range of instruments, suggesting potential price pressures are closer to their 2% target.
On Thursday, Lt. Gov. Rhys Mendes outlined how the central bank assessed core consumer price inflation, which would eliminate more volatile price elements such as gas and food.
Mendes said in a London speech in Ontario that the bank’s so-called CPI-Trim and CPI-Median programs had an annual price pressure of about 3%, but reiterated that the bank viewed basic naturalization as “nearby 2.5%. He said this was not a “definite estimate.”
According to Mendes, labeling these measures as “preferred” might “make the market more emphasis on core measures priorities than our core measures” and said the bank does not want Canadians or the market to “be overly focused on individual indicators.”
These comments are the latest in a series of comments from policy makers that gradually emphasize these two preferred core metrics. In setting interest rates, the central bank stresses that it focuses on a broader assessment of price changes rather than specific gauges.
Bank of Canada lowered its benchmark policy rate to 2.5% in September, a testament to the tariff dispute with the United States hitting the economy and job markets. At the time, the bank said it also saw the momentum of inflation disappearing.
The bank plans to review the way inflation is measured by the upcoming framework renewal in 2026, but said it does not want to review its target for annual changes in the Consumer Price Index, currently at 2%.
Mendes, for example, also said banks are considering whether they should modify the inflation gauge so that they “pre-limit mortgage interest costs”, in part because the cost of borrowing can “mask the broader reaction of inflation to policy interest rates.”
Mendes said the bank is also considering incorporating artificial intelligence and “diversified core trend inflation.”
In recent years, officials have increasingly shown that the preferred measures are not the key to their thinking about core inflation. Three measures were proposed in 2016 under former Governor Stephen Poloz, but in 2022, the bank made it clear that it would no longer focus on CPI-Common.
“Adding more inflation measures will make it more difficult for the public and market participants to understand how banks view inflation,” Dominique Lapointe, an economist at Manulife Asset Management, said via email.
He noted that in countries like the United States, the Fed tends to “almost completely limit” inflation analysis to annual changes and inflation in the title, excluding food and energy.
– With the assistance of Mario Baker Ramirez.
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Last modified: October 2, 2025
