The Bank of Canada's New Model Adds a Layer Between Costs and Prices

Prima is the Bank of Canada's new model for projection and policy analysis. It keeps the economic foundations of the Bank's earlier models and adds detail on a specific link: how pressures in particular sectors affect production costs, and how those costs pass through to consumer prices. That chain — a cost somewhere in the economy showing up later on a price tag — is what a projection model has to represent if it wants to say anything useful about where inflation is coming from. Prima's distinguishing feature, per the Bank, is doing it sector by sector rather than treating the economy as one undifferentiated producer.