Inflation Control Targets Renewed

In addition to prudent fiscal policy and a sound domestic financial system, the Government and the Bank of Canada attribute Canada's success in weathering the storm of the recent global recession to Canada's flexible inflation-targeting framework.

The Inflation Control Target was initially introduced in 1991. Since then, Consumer Price Index (CPI) inflation has been held to a stable and predictable level of close to 2 per cent. What's more, real output has expanded at an average rate of close to 3 per cent per annum. The labour market has also been strong, exemplified by the sub 6% unemployment rate prior to the 2008-2009 global financial crisis.

Canada has been one of the strongest performing advanced economies throughout the crisis. In fact, Canada is the only G7 country to have recovered all of the output and the jobs lost during the recession, and more. As a result, the Government the Bank of Canada agreed to renew the inflation target on the following basis (from the Bank of Canada):

ï The target will continue to be defined in terms of the 12-month rate of change in the total CPI.

ï The inflation target will continue to be the 2 per cent mid-point of the 1 to 3 per cent inflation-control range.