When the two series deviate, total CPI inflation tends to converge on core inflation rather than the reverse. Core inflation is therefore a better guide as to where total inflation is going. This phenomenon might reflect the success that the Bank has enjoyed over the past 17 years in keeping total CPI inflation close to its 2 per cent target.
We believed that as we worked toward our next projection, published in today’s MPR, we would probably be downgrading the economic outlook. That would mean a longer period of economic slack in Canada, and would translate into a downside risk to inflation later in the forecast horizon.