The Bank of Canada must assess whether aiming for stable consumer prices is a desirable alternative to its inflation-targeting regime, according to a commentary released today by the C.D. Howe Institute.

David Laidler, Professor Emeritus at the University of Western Ontario and Fellow-in-Residence at the Institute, identifies price-level stability as one of the major issues that need early and thorough examination, as the central bank undertakes a review of the current monetary system.

In “Better Late Then Never: Towards a Systematic Review of Canada’s Monetary Policy Regime”, Laidler observes that inflation, even at 2%, has corrosive effects on savings and fixed incomes.

He says price stability would have two key features. Instead of the current 2% inflation target, 1% CPI inflation would be a likely goal. Instead of treating inflation performance, when it overshoots or undershoots the target, as a bygone, policymakers would aim to correct its effects on the future price level.

The report is available at: http://www.cdhowe.org/pdf/commentary_252.pdf.