The Bank of Canada will continue to target 2% inflation for the next five years, renewing its agreement with the federal government.
The Department of Finance announced Tuesday that the government and the central bank have renewed the flexible inflation-target regime for another five years to the end of 2016. Under the renewed agreement, the inflation target will continue to be the 2% mid-point of the 1% to 3% inflation-control range, it said.
Canada first adopted an inflation-targeting framework to guide its monetary policy back in 1991. And, the BoC says that since then, consumer price inflation has achieved a low, stable and predictable level of close to 2%, real output has expanded at an average rate of close to 3% per year, and the labour market has been strong. It points to the inflation target, “which has helped to anchor inflation expectations and has provided a more stable and certain economic environment in which Canadians can make their investment and spending decisions”, as a key reason for this performance.
“At a time of continuing global economic uncertainty, it is more important than ever to provide a stable economic environment that bolsters confidence and supports growth,” said finance minister Jim Flaherty. “The flexible approach to inflation targeting we have in Canada helps create these conditions, and together with our strong financial institutions and sound public finances, represents strong economic fundamentals that are recognized around the globe. Low, stable and predictable inflation benefits households and businesses through lower mortgage and loan costs.”
The BoC said it will continue its research into potential improvements in the monetary policy framework. And, before the end of 2016, the government and the central bank will review the results of the research, along with the economic results over the next five years, to determine the appropriate target for the years after 2016.