The recent slowdown in all three new core inflation measures suggest that the excess slack in the economy is building. The core CPI-common measure, which tracks the output gap most closely is of particular concern. The Bank of Canada expects above-potential GDP growth this year to close the output gap and push the core inflation rate back toward the 2% target by mid-2018. But with core inflation now dangerously low, the Bank really doesn’t have room for error.
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