The Bank of Canada aims to keep inflation at the 2 per cent midpoint of an inflation-control target range of 1 to 3 per cent. The inflation target is expressed as the year-over-year increase in the total consumer price index (CPI)—the most relevant measure of the cost of living for most Canadians. The Bank also monitors a set of “core” inflation measures, including the CPIX, which strips out eight of the most volatile CPI components. These “core” measures allow the Bank to “look through” temporary changes in total CPI inflation and to focus on the underlying trend of inflation, which is a good indicator of where total CPI inflation is headed in the absence of policy action. In this sense, core inflation is monitored as an operational guide to help the Bank achieve the total CPI inflation target, not as a replacement for it.
An animated presentation on the benefits of low and stable inflation (requires Adobe Flash.)