Investors Fly Blind As Key Bank of Canada Inflation Gauge Misfires

 

• Canadian economists are scrambling for a reliable measure to track underlying inflation as large and frequent revisions have dented the credibility of a key Bank of Canada yardstick, even as the central bank said it was sticking with its core measures.
• Canada's central bank has three preferred measures of core inflation - CPI-common, CPI-median and CPI-trim. CPI-common once touted as the best gauge of the economy's performance has been subject to repeated revisions since the start of this year.
• Those same revisions show that price moves originally identified as transitory turned out not to be transitory at all, highlighting the measure's ineffectiveness when prices rise rapidly and calling into question its value, said analysts.
• With CPI-common's usefulness now in question, and the odds of a recession rising, the central bank should be taking a hard look at how it tracks core inflation, said analysts.
• "The Bank's challenge is walking the extremely fine line between tightening enough to get inflation back to target while not tightening so much that it causes a major recession," said Stephen Brown, senior Canada economist at Capital Economics.
• Some analysts say the Bank of Canada should return to CPIX or simply track how many index components are rising more quickly than the 2% target.

(Source: Reuters)