To understand the evolution of CPI inflation, the Bank looks at the forces shaping various prices, one of which is consumer price differentials between Canada and the United States. We also examine the role played by the exchange rate in price gaps, about which I will speak in a moment.
We look at both of these, and the factors that drive them, to understand how prices are set in Canada which, in turn, contributes to our analysis of the inflation expectations of Canadian households and businesses and, ultimately, to our ability to fulfill the Bank’s mandate.