Today's CPI release is making headlines, but the headline statistic of 3.7 per cent year-over-year inflation is not the one that strikes me most. For reasons explained here, the Bank of Canada views movements in the 'core' index -- which strips out the effects of changes in the most volatile components of the CPI -- as a more reliable indicator of trends in inflation than the headline number.
The year-over-year growth rate of the core index increased slightly, but if you look at recent horizons of less than 12 months, the trends in core inflation are starting to establish themselves in a way that the Bank is likely to find disquieting. Core inflation over the last 6 months is above the 2 per cent target, and the three-month core inflation rate was 3.8 per cent.
The last time short-term core inflation drifted above target was in the early months of 2010, and the Bank of Canada started a round of interest rate increases shortly afterwards. This more recent surge is even stronger.