The Bank Of Canada Interest Rate Decision

Scott Tannas, a conservative from Alberta, had asked Stephen Poloz to explain the difference between inflation and core inflation and here is what Poloz replied him.

Bank of Canada Governor Stephen Poloz, said, ‘’Every individual has a different personalized inflation rate, and it is often enhanced by media attention, you remember last year it was all about the$9 cauliflower, but this year there were no articles about the 69-per cent cauliflower. That is the way it is. Now the articles are about expensive gas, but two months ago there were no articles about the inexpensive gas. That is just life. We try to see through those things and these measures help us do that.” said Poloz, during a testimony at the Senate Banking Committee in April.

And yes, the Central bank’s only real job is to keep inflation at about 2%. Spikes in vegetable and gasoline prices makes that job difficult, as they push the consumer Price Index into the red. Over-the-top coverage of those spikes complicates matters by creating an impression that inflation is rampant.

The core measures calm things down. They exclude the most volatile prices, leaving a truer reading of the trend. Since it can take as long as two years for an interest-rate change to affect prices, the central bank relies on the core gauges to guide it to target: monthly increases in the CPI of 2%- give or take-from a year earlier.

The bank of Canada looked at raising its target last year and decided against it. That decision demonstrated the central bank’s commitment to tethering inflation. It is important to keep in mind that even if Poloz opted to increase interest rates next month, or later this year, the rate still would be an incredible low 0.75%. That probably would be fine, except the central bank has put such an emphasis on core inflation over the years.