Why does the Bank of Canada pay close attention to the core inflation measures in addition to the overall CPI inflation rate?
A)The core inflation measures include taxes, while the overall CPI rate does not.
B)The core inflation measures are more volatile and therefore a better predictor of trend inflation.
C)The core inflation measures have a lower average value and therefore makes the Bank look better.
D)The core inflation measures provide a better view of the underlying inflation trend and better predict future CPI inflation.
E)The core inflation measures include eight volatile prices and are therefore more likely to stay within the target band.

Question

Quizplus · Accepted Answer

The Bank of Canada pays close attention to the core inflation measures because they provide a better view of the underlying inflation trend and better predict future CPI inflation. This is because core measures exclude prices that are volatile or affected by external factors (such as energy prices), which makes them a better predictor of trend inflation. This, in turn, allows the Bank of Canada to make better decisions regarding monetary policy.

Why Does the Bank of Canada Pay Close Attention to the Core