The Bankwatch

Tracking the consumer evolution of financial services

Inflation requires some better measurement and fresh assumptions | CD Howe

CD Howe argue in a new paper (pdf) that the Canadian central bank reliance on Core inflation as an argument that we should not worry about the Headline inflation rate (Consumer Price Index – CPI) is at best misleading.  Core inflation strips out the supposedly volatile components.

The first problem with the Bank of Canada argument is that consumers pay for things that are stripped out in the core rate.  Furthermore they note that the argument that the CPI will naturally gravitate to the Core rate over time no longer holds water as display here.  There has been a significant divergence that appears to begin around 2000 when using 1996 as the starting point.  CPI is tracking to its own trajectory and is not falling back in line with Core as the central bank argues.

 

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Written by Colin Henderson

October 5, 2011 at 11:51

Posted in Uncategorized

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