If core inflation - which strips out eight highly volatile components of the consumer price index - is consistently coming in above or below our expectations, it may lead us to adjust our view about the current size of the output gap.
Earlier, I said that when the economy is operating near its capacity, total demand for Canadian goods and services - or what economists like to refer to as "aggregate demand" - is roughly in balance with total supply. Total demand has two components - domestic demand and foreign demand.