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The weird thing is (for those of us who think in terms of Phillips Curves), that if you looked at your graph, and didn't know there was a serious recession on, you wouldn't see any sign of it in the core inflation data. You can sort of see it if you're looking for it, since there is a slowing of core inflation since late 2008, but that's just a sort of confirmation bias. You wouldn't see it if you weren't looking.

But the fall in core inflation in late 2007 sticks out much more vividly. What was that? It can't be GST cut, can it? Since core subtracts the "effects" of indirect taxes.

(I put "effects" in scare quotes, because it's a purely arithmetical operation ("a 1% tax cut means prices fall 1%") with no theoretical underpinnings.)

I think the story in late 2007 was that this was the episode when the CAD hit parity with the USD. There were quite a lot of stories about a consumer revolt (just before Christmas, too), as people saw that Canadian prices for many goods were much higher than in the US. The pass-through was telescoped into a few weeks.

And I expect the Bank would be proud to hear your first comment - if the Bank is doing its job well, inflation should be 2% +/- random noise.

Maybe (again thinking in terms of a Phillips Curve) deflation looking less and less likely and inflation creeping up to the target are early signs that the recession is pretty much over.

Roubini is talking about there being another asset bubble.

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