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

Question 2

Multiple Choice

Why does the Bank of Canada pay close attention to the core inflation rate in addition to the overall CPI inflation rate?


A) The core rate is more volatile and therefore a better predictor of trend inflation.
B) The core rate includes taxes, while the overall CPI rate does not.
C) The core rate has a lower average value and therefore makes the Bank look better.
D) The core rate is less volatile and a better predictor of future CPI inflation.
E) The core rate excludes eight volatile prices and is therefore more likely to stay within the target band.

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