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The Common Component of CPI: An Alternative Measure of Underlying Inflation for Canada

Mikael Khan, Louis Morel and Patrick Sabourin

Staff Working Papers from Bank of Canada

Abstract: In this paper, the authors propose a measure of underlying inflation for Canada obtained from estimating a monthly factor model on individual components of the CPI. This measure, labelled the common component of CPI, has intuitive appeal and a number of interesting features. In particular, it is not affected by sector-specific price movements that can distort the signal in many other measures of underlying inflation, and appears to capture price movements that are indicative of aggregate demand fluctuations in the Canadian economy. This indicator may serve as a useful complement to existing measures of underlying inflation monitored by the Bank of Canada.

Keywords: Business fluctuations and cycles; Econometric and statistical methods; Inflation and prices; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: C1 E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:13-35

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