Pulse check: Measuring underlying inflation and its drivers

This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. We find that broad-based inflationary pressures account for most underlying inflation, while sector-specific factors—particularly shelter—have become more inflationary since 2021. Unlike CPI-common, PULSE is less prone to large historical revisions and maintains a strong correlation with economic slack.