Core Inflation

In setting monetary policy, the Bank of Canada emphasizes “Core CPI,” which excludes the most volatile components of the Consumer Price Index to provide a clearer measure of underlying trends. My last post noted that average Canadian wage increases exceeded inflation by only 1% during the past year. However, inflation was held down by a dip in energy prices. Therefore, average wage increases exceeded core inflation by just 0.1%.

To the extent that Core CPI is a better measure of underlying trends, these trends appear to be ominous for Canadian workers. If Core CPI were measured on a provincial basis, it would almost certainly have exceeded average wage increases in Alberta, Newfoundland, and probably Quebec.

The problem is not that inflation is out of control (even Core CPI rose by only 2.1%), but that wage growth has been so sluggish. All of the rhetoric about labour shortages rings a bit hallow given that nominal wages rose by only 2.2% nationally and by 4.1% in booming Alberta.