When it comes to Canada's inflation reading, you may want to look past the so-called core reading – at least this month. Statistics Canada is making some changes to the inputs of its Consumer Price Index core trim and median figures – the measures most important to the Bank of Canada. 
It’s a routine revision that could still have some significant impacts.
StatsCan routinely updates the way it measures inflation, based on the evolving changes to what Canadians spend their money on and how much of their budget is consumed by those expenses. But in this case, there’s ever more attention on inflation data and its impact on central bank policy, so methodology changes have something of an outsized effect, particularly if it alters those key measures.
Unlike the so-called headline reading (which is the overall change in all prices in StatsCan’s basket of goods), CPI trim and CPI median basically try to take out extreme outliers when it comes to changes in order to give a clearer picture of overall price pressures faced by Canadians. For example, Core CPI strips out volatile items like food and gas prices.
In the case of trim, think back to high school or university, where you were graded on a curve – trim excludes the high-end and low-end of the bell curve to the tune of 20 per cent – so it accounts for the middle 60 per cent of price changes. That’s perhaps more indicative of the actual prices paid by Canadians by dropping the most volatile items at the fringes, but people are still paying for items on those fringes.
That also introduces volatility – the 40 per cent of items excluded in one report isn’t exactly static from month to month, which could influence individual results. So too does the enhancement of data reported on 15 of the CPI basket components – things like property taxes, transit costs and health care services, items that are rather static and can skew results by their very nature.
In terms of the headline figures, while headline CPI is expected to come in at 6.1 per cent in January when it’s released Tuesday morning, down from 6.3 per cent from a month ago, core should hold relatively steady in the five per cent range, stubbornly above the Bank of Canada’s two per cent target.
The Bank of Canada has hiked rates eight straight meetings in a row in its inflation fight, raising its benchmark rate from the effective lower bound of 0.25 per cent to its current 4.25 per cent.
In any case, this revision – going back seven years – will change the arithmetic for central bank watchers as they adjust their views and adds a certain amount of doubt to how we view the inflationary picture as the BoC tries to wrestle inflation back to target, according to Scotiabank Head of Capital Markets Economics Derek Holt. In a note to clients, Holt said the change in methodology adds another element of uncertainty to every inflation print.  
“Herein lies the rub—be very careful insofar as measures of core inflation are concerned this time around,” he said.
“This is part of normal revisions, but we have no real way of telling how the figures could change in
direction, magnitude and timing.”