Segmented Inflation Dynamics (SID): Identifying Trend Inflation from the Price Index

André Binette and Colleen Smith

No 2026-43, Staff Analytical Papers from Bank of Canada

Abstract: This note presents Segmented Inflation Dynamics (SID), a data-driven tool for assessing trend inflation. SID uses time-series segmentation to divide the price index into contiguous segments with stable inflation rates. The segmentation breaks are identified from the data. The slope of each segment provides a well-defined estimate of trend inflation that is stable but responsive to persistent shifts. Using Canadian data from 1992 to 2025, the note describes the resulting inflation segments, tests the robustness of the method and assesses its real-time properties. Results show that SID offers a stable, interpretable measure of trend inflation, with limited sensitivity to short-term volatility and quick adjustment to shifts in inflation dynamics. Based on data through December 2025, SID indicates that Canada’s trend inflation has been near 2 percent since early 2024.

Keywords: Models and tools; Econometric, statistical and computational methods; Monetary policy; Inflation dynamics and pressures (search for similar items in EconPapers)
JEL-codes: C C2 C22 E E3 E31 E5 E52 (search for similar items in EconPapers)
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsap:26-43

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