Method of measuring inflation to change

Canada’s monetary policymakers will continue to focus on a two per cent inflation target — but how they determine the overall direction and pace of price movements is about to change.

The federal government and the Bank of Canada said Monday they had renewed their inflation mandate for another five years. In doing so, however, they decided to stop using the so-called “core” reading of the Consumer Price Index as their primary guide.

Under the renewed agreement, which will run until the end of 2021, the target will remain at the mid-point of the central bank’s comfort range of one to three per cent. “Maintaining low, stable and predictable inflation is essential to foster an environment in which middle class Canadians can prosper. Price stability contributes to balanced, sustainable and inclusive economic growth,” the finance department said in a statement.

In a separate statement, Finance Minister Bill Morneau said “Canada has a tried-and-true inflation-targeting regime, which was brought in 25 years ago.”

Since 2001, the bank’s core inflation indicator has been the socalled “CPIX” reading. It strips out many of the economy’s most volatile items, such as some food, energy products and mortgage interest costs.

Beginning with November’s data, to be published by Statistics Canada on Dec. 22, inflation reports will no longer refer to the core indicator. In its place will be three separate indexes: CPI-common (tracking price changes across common categories), CPI-median (the range of price changes in a given month) and CPI-trim (excluding components with extreme monthly price changes).

On Friday, Statistics Canada reported overall CPI in September rose 1.3 per cent on a year-overyear basis, up from 1.1 per cent the previous month. Core inflation during September was 1.8 per cent, unchanged from August.