Households in the advanced economies are still in the process of deleveraging and repairing their impaired balance sheets, and monetary policy can only help to a certain extent. In the context of low and falling house prices, declining equity prices and stubbornly high unemployment, rebuilding of household balance sheets may take a protracted period.
One of these issues is what measure or measures we should use to gauge underlying inflationary pressures. The best-known measure, core inflation, is facing upward pressure because of the impact of the lower Canadian dollar on the prices of imported goods. As such, core inflation is overstating the underlying trend of inflation in the economy.