(Bloomberg) -- Bank of Canada Governor Tiff Macklem says underlying price pressures may be cooler than indicated by the central bank’s two preferred measures of core inflation.
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Inflation data for January released earlier this week showed the headline figure ticked up to 1.9%, with the two core measures — so-called trim and median — both rising to 2.7%. The metrics have been stuck close to these levels for months, and Macklem told reporters Friday the central bank is “obviously watching that closely.”
When policymakers look at a broader set of measures of underlying inflation, it appears to be just over 2%, he said. And if one looks at the share of consumer price index components rising faster than 3%, it looks “pretty normal” compared with historical levels, he added.
“The fact that we’ve had this sustained pressure in shelter costs, that is having some effect on our core measures,” Macklem said. “We’ll continue to watch them carefully, but there are some technical features of the preferred measures that suggest that might be a little bit overstated.”
It’s the strongest signal yet that the central bank may be starting to move away from the two measures as key guideposts for setting interest rates. In his speech Friday, Macklem also pledged to review the measurement of underlying price momentum during the central bank’s upcoming framework renewal.
Last month, Senior Deputy Governor Carolyn Rogers said policymakers did “not put a lot of weight” on the recent above-target monthly moves in one of its two preferred core measures, citing “particularities” in its calculations. Policymakers also attributed some of the pressures to shelter costs.
But some economists, including Capital Economics’s Ruben Gargallo Abargues, have doubted the bank’s view that these measures are overstating underlying pressures.
Abargues argued in a recent report to investors that even if rents and mortgage interest costs are taken out, the core gauges would still show inflationary pressures — which could be a result of the recovery in the labor market and consumption growth as well as a weaker Canadian dollar raising costs for imports.
The central bank has a track record of abandoning some core inflation measures and redirecting focus on others. The bank under former Governor Stephen Poloz introduced three new preferred measures in 2017 to replace a metric known as CPIX, which continued to decelerate even as policymakers started hiking rates.