MNI BRIEF: Highlights Of BOC Deputy Speech On Core Inflation

Following are highlights of Thursday's speech by BOC Deputy Governor Rhys Mendes:

• "There’s no single, perfect measure of core inflation. Every measure, however well designed, will, at times, send misleading signals."
• "However, as inflation surged after the pandemic, CPI-common became difficult to use in real time due to unusually large historical revisions. That’s why, in 2022, we stopped including CPI-common in our set of preferred measures. And while our remaining two preferred measures have generally been helpful, they were less reliable during some periods. This is yet another reminder that, when assessing underlying inflation, we must look at a range of different types of indicators."
• "Second, recalling that underlying inflation is a concept rather than a measure, we don’t always put a number on it. Often, our assessment of underlying inflation leads us to conclude that it is largely consistent with the signal coming from our preferred measures of core inflation. When this is the case, we don’t need to be explicit about underlying inflation."
• "But this was not the case at the time of our July and September 2025 interest rate decisions. Underlying inflation was roughly half a percentage point lower than our preferred measures. That difference might not seem like much, but in the realm of monetary policy, it is important. Half a percentage point can mean the difference between a decision to hold interest rates steady or to cut them."
• "We saw reasons to believe that underlying inflation would ease. For example, rental markets are softening, which should help keep inflation in prices for shelter services on a downward trend. And growth in inputs costs has largely normalized, which should help cool inflation in non-energy goods prices."
• "One question we are asking ourselves is whether we should revise our preferred measures and our alternative measures of core inflation so they all pre-exclude mortgage interest costs. It’s something we’re considering carefully, particularly as we think about how monetary policy and imbalances in the housing market interact - which is one of the other major topics we’re exploring as part of our 2026 renewal."
• "Improvements to our existing measures are just the first part of this work. The second part is exploring new measures of core inflation. These would not necessarily be replacements for our existing core measures, but rather enhancements."
• "We’ve long labelled one or more measures of core inflation as our “preferred” measures. And we’ve said these preferred measures are “an operational guide to help the Bank achieve its inflation target.” At times, this language may have led markets to place more emphasis on the preferred core measures than we do. 
  In practice, our preferred measures are just some of the many indicators we use to achieve our inflation target. So this raises questions. Should we broaden our list of preferred measures? Or perhaps even end the practice of identifying some measures as “preferred”?"
• "While all core measures sometimes give misleading signals, our preferred measures have generally proven to be helpful. And more often than not, they have provided us with a clear way to talk about underlying inflation. But we also don’t want Canadians or financial markets to become overly focused on a single indicator."
• "Abrupt swings in US trade policy have shocked Canada’s economy. And we’re facing structural change and rising geopolitical conflict. With these shifts come the potential for more and larger shocks. That means greater volatility in prices and the possibility of higher inflationary pressures."