Summary:
The Bank of Canada has cautioned markets against overemphasizing its “preferred” core inflation measures, emphasizing a broader assessment of price pressures. Deputy Governor Rhys Mendes highlighted that while CPI-trim and CPI-median show inflation around 3%, underlying inflation is closer to 2.5%. The central bank is considering revisions to inflation gauges, including excluding mortgage interest costs and incorporating AI. These insights come amid ongoing economic challenges and the bank’s commitment to its 2% inflation target.
What This Means for You:
- Monitor a wider range of inflation indicators beyond core measures to gauge economic conditions accurately.
- Prepare for potential adjustments in inflation measurement methodologies, particularly regarding mortgage interest costs.
- Stay informed about the Bank of Canada’s evolving strategies, as they could impact monetary policy and borrowing rates.
- Be cautious of market overreactions to specific inflation metrics, as the bank emphasizes a holistic view.
Original Post:
By Erik Hertzberg
(Bloomberg) — The Bank of Canada warned traders may be putting too much emphasis on its “preferred” core inflation measures, saying it’s weighing a broader suite of gauges that suggest underlying price pressures are closer to its 2% target.
On Thursday, Deputy Governor Rhys Mendes outlined how the central bank has been assessing core consumer price inflation, which strips out more volatile price components like gas and food.
In a speech in London, Ontario, Mendes said the bank’s so-called preferred gauges of CPI-trim and CPI-median show yearly price pressures around 3%, but reiterated that the bank sees underlying inflation “in the vicinity of 2.5%.” That’s not intended to be a “precise estimate,” he said.
According to Mendes, labelling the measures as “preferred” may have “led markets to place more emphasis on the preferred core measures than we do,” and said that the bank doesn’t want Canadians or markets to be “overly focused on a single indicator.”
The comments are the latest in a series of remarks by policymakers that have de-emphasized the two preferred core metrics. As it sets interest rates, the central bank has stressed that it’s focusing on broader assessments of price changes rather than particular gauges.
The Bank of Canada lowered its benchmark policy rate to 2.5% in September, amid evidence the tariff dispute with the U.S. had struck the economy and jobs market. At that time, the bank said it also saw upward momentum on inflation had dissipated.
The bank plans to review how it measures inflation in the upcoming framework renewal in 2026, but has said it does not want to review its target for the yearly change in the consumer price index, which is currently 2%.
As an example, Mendes also said the bank is considering whether the bank should revise inflation gauges so they all “pre-exclude mortgage interest costs,” in part because changing borrowing costs can “obscure the broader response of inflation” to changes in the policy rate.
Mendes said the bank is also looking at incorporating artificial intelligence, and “multivariate core trend inflation.”
In recent years, officials have increasingly suggested the preferred measures aren’t key to their thinking on core inflation. Three measures were introduced in 2016 under former Governor Stephen Poloz, but in 2022, the bank made it clear it would no longer focus on CPI-common.
“Adding more inflation measures will make it more difficult for the general public and market participants to understand how the bank sees inflation,” Dominique Lapointe, an economist with Manulife Asset Management, said by email.
He pointed to countries like the US, where the Federal Reserve tends to limit inflation analysis “almost exclusively” to headline yearly changes and inflation excluding food and energy.
–With assistance from Mario Baker Ramirez.
©2025 Bloomberg L.P.
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Bank of Canada bloomberg BoC BoC speech core inflation Dashboard Dominique Lapointe Erik Hertzberg inflation Rhys Mendes
Last modified: October 2, 2025
Extra Information:
For further reading, explore the Bank of Canada’s inflation framework and Bloomberg’s coverage of global monetary policy trends.
People Also Ask About:
- What are the Bank of Canada’s preferred inflation measures? CPI-trim and CPI-median are the bank’s preferred core inflation gauges.
- Why is the Bank of Canada revising its inflation measures? To account for factors like mortgage interest costs and leverage AI for better accuracy.
- How does inflation impact mortgage rates in Canada? Higher inflation can lead to increased borrowing costs as central banks raise rates to curb price pressures.
- What is the Bank of Canada’s inflation target? The bank aims for a 2% yearly change in the consumer price index.
Expert Opinion:
Experts suggest that the Bank of Canada’s move to broaden its inflation assessment reflects a shift toward more nuanced monetary policy. This approach may better capture economic realities but could also complicate public understanding of inflation trends.
Key Terms:
- Bank of Canada inflation measures
- CPI-trim and CPI-median
- Mortgage interest costs and inflation
- Artificial intelligence in inflation analysis
- Monetary policy adjustments 2025
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