The Bank of Canada aims for 2% inflation (within a range of 1%-to-3% on a year-over-year basis). Thus, the year-on-year rate of change in consumer prices provides a useful guide on the potential future Bank action, as rising inflation typically leads to the Bank raising interest rates. It is also important to look at what is causing the short-term pressure on inflation. Volatile price movements and indirect taxes can all distort inflation data.
A better guide for inflation pressure is core inflation (CPIX). A strong upward trend in CPIX is a better signal that inflation is becoming problematic as firms pass on price increases to consumers.
