Bank of Canada policymakers often refer to “preferred measures of core inflation” as a key metric behind rate decisions. This year’s drop in gas prices is a prime example of why these stripped-down price gauges are so important to the bank.
According to pump price data from Kalibrate, the national average price for a litre of regular grade gasoline is down about 15 per cent year-over-year. Ottawa’s elimination of the consumer-facing carbon tax, and the cancellation of corresponding levies in some provinces, are the big reasons why.
Statistics Canada says falling gas prices last year created what economists call a “base-year effect,” which can distort the appearance of current trends. In this case, the base-year effect on gasoline prices put upward pressure on the Consumer Price Index (CPI) in June.
“While consumers continued to pay less at the pump on a year-over-year basis in June (-13.4 per cent), the decline was smaller than in May (-15.5 per cent),” the agency wrote last month. “The smaller decline was a result of a larger month-over-month decrease in June 2024 (-3.1 per cent) compared with June 2025 (-0.7 per cent).”
The Bank of Canada uses a trio of modified CPI baskets to strip away different types price volatility. These “preferred measures of core inflation” include CPI-trim, CPI-median, and CPI-common.
Here’s how they work:
CPI-trim: This measure “trims” away 20 per cent of the weighted monthly price variations at the bottom and top of the distribution of price changes. By removing this volatile 40 per cent, policymakers can filter out things like the impact of severe weather on food prices, for example.
CPI-median: This looks at the middle value of the price changes for all items in the CPI basket when they are ranked from lowest to highest. The aim is to eliminate big price fluctuations for a reading on a typical item in each category.
CPI-common: This tracks common price changes across the 55 components in the CPI basket, filtering out price fluctuations that are specific to individual components for a more stable indicator of inflationary pressures.