MNI: BOC Saw Core CPI Distorted By Pricey Shelter- Minutes

Bank of Canada officials saw elevated shelter costs distorting core inflation measures, minutes of their latest decision published Wednesday showed, casting further doubt on the ability to accurately track price trends through major shifts in the economy like the pandemic and the U.S. trade war. 

The report focused mostly on the risk U.S. tariffs would boost consumer prices or stall Canada's economy. Officials for a second meeting debated a hold or a cut, noting trade uncertainty meant it was unclear whether headline inflation would break away from their 2% target. They ultimately decided to keep the rate steady at 2.75% following seven prior reductions

"Core measures of inflation were running a little under 3%, boosted by higher goods prices. It appears that core inflation measures are also being distorted by still-high inflation in shelter services," the Summary of Deliberations said.

The Bank has backed away from one of their three relatively new core inflation measures after it showed difficulty capturing swings in the economy. Some economists say it might be easier to embrace the more standard core measure used across many countries of inflation excluding food and energy. 

Canada's long housing boom has made shelter a bigger part of a typical family's spending basket, giving it more weight in the Consumer Price Index. The country now has one of the world's most stretched housing markets according to the IMF. That developed through periods of low-for-long interest rates and governments failing to boost supply to match a changing population.

The deliberations also reiterated a few of Governor Tiff Macklem's key messages after the last meeting, including a stance of being less forward-looking given competing risks. "If new information pointed clearly to one side or the other of these opposing forces on inflation, Governing Council would be prepared to act decisively," the report said. "Members agreed that in the face of tariffs, monetary policy should support the economy while maintaining its primary focus on price stability."