Canada announces renewed inflation target range

Canadian government and central bank announce renewal of the inflation-control target for the central bank; goal to remain the 2% mid-point of a 1-3% range

Based on the positive 20-year experience of using inflation targeting, the Canadian government and the Bank of Canada have jointly agreed to renew the inflation target for the central bank.

The central bank's aim when setting monetary policy will continue to be keeping inflation at the 2% mid-point of a 1-3% inflation-control range. The target will still be defined in terms of the 12-month rate of change in the total consumer price index (CPI), despite recent discussions about broadening the ambit to look at factors such as nominal GDP or full employment.

The new agreement will run for another five-year period, ending on December 31, 2016.

Since Canada adopted an inflation-targeting framework in 1991, the country has experienced positive developments. CPI inflation has been reduced to a level of close to 2% and remained stable, real output has expanded at an average rate of close to 3% a year and the performance of the labour market has been strong, with the unemployment rate falling below 6% prior to the 2008–2009 global economic and financial crisis.

"The experience of the global economic and financial crisis underscored the value of Canada's flexible inflation-targeting framework," said a joint statement from the central bank and the government. "The inflation-targeting framework, prudent fiscal policy and a sound domestic financial system have helped ensure that Canada has been one of the strongest performing advanced economies during and following the global economic and financial crisis."

The central bank recommitted to its research into potential improvements that could in the future be made to the monetary policy framework.

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