In the last few years, the path of CPI inflation has deviated from the path of core
Question:
In the last few years, the path of CPI inflation has deviated from the path of core inflation several times (see Figure 28 -4).
a. Why is core inflation less volatile than CPI inflation?
b. Why might the Bank focus more on core inflation during some periods?
Transcribed Image Text:
FIGURE 28-4 Canadian CPI and Core Inflation, 1992-2015 5 Average Inflation Rate (%) 4 2-percent inflation target m Core inflation - CPI inflation 0 1992 1994 1996 1998 2000 2002 2004 2006 Year 2008 2010 2012 2014 The CPI inflation rate is more volatile than the "core" inflation rate. The core rate of inflation in Canada is the rate of change of a special price index constructed by removing food, energy, and the effects of indirect taxes from the overall Consumer Price Index. For both series shown here, the inflation rate is computed monthly but is the rate of change in the price index from 12 months earlier.
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