Every five years, the Bank of Canada and the Government of Canada review and renew the agreement on Canada’s monetary policy framework. The agreement will be renewed before the end of 2026. To inform this process, the Bank consulted with the public and a wide range of stakeholders. This report summarizes the findings.
Context
In the 25 years leading up to the pandemic, inflation in Canada had stayed around the 2% target. Monetary policy frameworks were tested mainly by shocks affecting demand, such as the 2008–09 global financial crisis. Supply shocks tended to have short-lived or relatively modest impacts on inflation.
The COVID-19 pandemic tested the framework like never before. The Canadian economy faced major shocks to both supply and demand, a deep recession and then a rapid rebound. Inflation hit a 40-year high at 8.1% in 2022. The Bank raised the policy interest rate forcefully to bring inflation down. It was a painful adjustment for many Canadians but in the summer of 2024, inflation returned to 2% without causing a recession or major job losses.
While inflation has come down, prices have remained higher and more Canadians are struggling with the cost of living. Geopolitical events and US trade protectionism have also raised anxiety among Canadians.
Against this backdrop, the Bank consulted with Canadians across the country as it prepared to review its monetary policy framework. Participants in the consultations had varying levels of knowledge of monetary policy and economics, but everyone provided useful perspectives on the Bank’s research questions based on their experiences.
The insights gathered through these consultations will inform how the Bank sets and communicates monetary policy moving forward.
What we did
The Bank gathered input on recent experiences with inflation and monetary policy, as well as on the following three research questions:
- How should monetary policy respond in a world where supply shocks have larger and more persistent effects on inflation?
- In a world more prone to volatility, how should the Bank assess and communicate about inflation? What measures of core inflation are most appropriate when there are structural changes in the economy?
- How does monetary policy affect housing demand and supply, and how is inflation in shelter prices measured and interpreted for policy purposes?
The Bank engaged with diverse groups of stakeholders as well as with the Canadian public.
- Community conversations: In 2025, the Bank met with groups of Canadians in 11 cities across the country to hear first-hand about their experience with inflation and gather their feedback on the issues and economic concepts under review.
- Stakeholder consultations: To help shape the renewal research agenda, the Bank engaged with private sector economists and academics in 2024. In 2025–26, the Bank consulted financial institutions and pension funds, business and employer associations, unions, think tanks, consumer groups and community organizations.
- Academic workshop: In 2025, the Bank held a workshop with experts from other central banks, universities and think tanks to gather their input on the research while it was still in development.
What we heard
Experiences with inflation
Canadians in all communities the Bank visited expressed concern with the cost of living. Many indicated that the consumer price index (CPI) did not align with their experience or with what they see when they shop. They believed the headline inflation figure was low and questioned what was included in the basket of goods and services Statistics Canada uses to calculate it.
Although inflation had come down from its peak and was within the Bank’s range of 1% to 3%, participants noted that prices had gone up a lot and most had not come down. Grocery prices were a top concern for Canadians who are currently dealing with cost-of-living pressures. The disconnect between official inflation data and Canadians’ daily experiences led to diminished trust in the CPI—and, by extension, in the Bank—because the data are used to make interest rate decisions.
Some stakeholders questioned whether the Bank considers affordability concerns when setting monetary policy. Consumer and business groups encouraged the Bank to adjust its messaging to better reflect the lived experiences of households and small and medium-sized businesses.
Indigenous participants noted that standard inflation measures do not accurately reflect price pressures faced by Indigenous Peoples because the consumption basket differs. For example, transportation costs are significantly higher due to limited substitutes.
Many experts expressed concerns that Canadians often conflate inflation with the price level. This confusion could harm the Bank’s credibility and weaken trust in the Bank’s ability to bring inflation back to target.
Private sector economists and think tanks recommended that the Bank increase efforts to explain that the Bank targets inflation, not affordability. They highlighted that the main challenge would be to convince people that—with inflation within the target range—affordability concerns should ease over time. Private sector economists encouraged the Bank to focus on simple communications about inflation and monetary policy to foster public trust in a more volatile world.
Civil society groups, think tanks and consumer advocates proposed that the Bank assess the distributional effects of inflation and monetary policy, noting that impacts differ across income levels, regions, demographics and housing tenure.
Perspectives on the 2% target
Stakeholders expressed strong support for maintaining a flexible inflation-targeting regime and the 2% target. Flexible inflation targeting and the target itself provide stability to the Canadian public and to financial markets. They are also easy to understand.
Some stakeholders suggested that changing the target could de-anchor inflation expectations. Many of them also highlighted the risk of a significant loss of credibility if the Bank raises the target, particularly following the recent period of elevated inflation.
Some stakeholders stated that the framework renewal agreement with the federal government should reassert the primary focus on inflation and place less emphasis on maximum sustainable employment, which was introduced in the 2021 agreement. In contrast, labour groups expressed a desire for the Bank to consider a dual mandate, focusing on both inflation and employment.
Many experts pointed to the challenges posed to the economy by structural forces such as digitalization, demographic trends, deglobalization and decarbonization. The impacts of these forces on inflation remain largely unknown—they could push inflation up or down. In this context, participants concluded that the bar to change the 2% target is very high.
Assessing and measuring inflation
Private sector economists felt the Bank had used too many measures of core inflation over the past decade. In 2016, the Bank selected three preferred measures of core inflation: CPI-trim, CPI-median and CPI‑common. The pandemic tested the reliability of these measures, leading the Bank to make use of a broader suite of indicators to assess underlying inflation. People who follow the Bank’s actions closely were unsure which measures mattered most for setting monetary policy at different times.
Private sector economists and think tanks argued that no measure of core inflation would be appropriate in all circumstances. They suggested the Bank should focus more on total CPI in public communications, since it is the target and because the public is skeptical of measures of core inflation.
Most participants in the community conversations found core inflation to be a challenging concept to grasp, despite being provided with various explanations. Participants viewed food and energy as essential goods, and they disagreed with excluding these from measures of core inflation. Bringing core inflation into the discussions created confusion about the target and what the Bank assesses when it makes its policy decisions.
During consultations, the Bank asked for views on the idea of publishing a dashboard of inflation indicators. Most experts said it would be useful if it included a limited set of indicators that are easy to replicate and communicate about. Civil society groups also received the idea positively. They believed it may help Canadians understand complex information more easily, particularly if the dashboard includes definitions in plain language and an explanation of how each indicator is used.
Civil society groups, think tanks and consumer advocates called on the Bank to consider using complementary measures of inflation or indexes beyond total CPI, such as a basic-needs basket or an affordability index, to track real-life experiences and provide a more relevant picture of inflation. Equity-seeking groups suggested the Bank consider the impact of monetary policy decisions on women, while others encouraged the Bank to investigate dynamic pricing because price-setting behaviour is shifting.
Monetary policy in a more volatile world
Most participants recognized that supply shocks are likely to become more frequent and persistent in the future, and these changes pose a dilemma for monetary policy. The net-zero transition and shifting US trade policy were viewed as presenting uneven risks across regions. Some stakeholders suggested the Bank also consider the possibility of positive supply shocks—such as productivity gains driven by artificial intelligence—in its review of the framework.
Participants in community conversations did not want prices to rise further, and they viewed higher interest rates as adding to their cost-of-living challenges. When presented with the trade-off that monetary policy faces in a supply shock (between bringing inflation down with higher interest rates versus supporting the economy with lower interest rates), participants in community conversations indicated that they would be willing to tolerate inflation slightly above 2% if it meant businesses kept running and people stayed employed.
Participants strongly preferred predictability when it came to changes in interest rates. They would rather have gradual than forceful changes in policy interest rates because, more than anything, they are looking for stability and predictability when they manage their household finances.
Multiple stakeholders suggested the Bank maintain the flexibility inherent in the framework to stabilize prices and respond to various types of shocks, whether those shocks are driven by supply or demand, big or small, transitory or persistent. Some mentioned they would like to see this flexibility enshrined in the agreement.
Stakeholder groups encouraged the Bank to communicate the policy trade-offs. They also asked the Bank to explain when and why it decides to look through certain shocks. Given the limited role that monetary policy can play to address supply shocks, some stakeholders recommended that the Bank highlight other policy levers that are better suited to these circumstances.
Private sector economists and think tanks stated that they would like to see a richer risk management framework and more frequent use of scenario analysis to avoid overreliance on a single economic model.
Housing imbalances and monetary policy
Participants in community conversations expressed a clear desire for action to address the housing crisis. Lack of access to housing and affordability challenges are major sources of concern across the country. People were looking for solutions and expected the Bank to do its part.
Participants in community conversations perceived interest rates to be the main reason for housing unaffordability. However, once the multiple factors that affect supply and demand for housing were explained—highlighting that interest rates are one piece of a complex puzzle—participants generally accepted that the Bank’s ability to address housing imbalances was limited.
Most stakeholder groups recognized that monetary policy has limited influence over housing supply and housing affordability. They suggested that the Bank clearly communicate that it has no policy target for housing and to clarify what monetary policy can and cannot do to address housing affordability challenges.
A recurrent theme was that the housing sector was very different across regions and demographic groups.
- Participants often mentioned that the housing that is available in their area is not affordable. Many encouraged the Bank to consider regional differences when setting interest rates or develop other policy tools to address regional diversity.
- Some economists, labour groups, think tanks and civil society organizations suggested the Bank put greater emphasis on rent inflation in both its research and its communications.
- Many younger participants shared that they had given up on the idea of owning a home someday. They felt the current system was letting them down. When the Bank explained the limits of monetary policy in addressing housing affordability, they did not perceive this as the Bank being transparent about what it can and cannot do. Instead, they saw it as falling short of addressing their concerns.
- Older demographic groups generally understood the complexity of the situation but were frustrated by the lack of action. Organizations that represent senior citizens said they worry that older Canadians could be penalized if house prices shift too much. These groups underscored that many seniors count on their home to fund their retirement and are struggling to downsize because suitable options are either not available in their communities or are unaffordable.
- Indigenous participants highlighted the significant level of disconnect between monetary policy and housing for First Nations because of the way housing is delivered on reserves.
Some think tanks emphasized that the current housing-related inflation measures disadvantage younger Canadians, and one of them advocated for a shift toward the acquisition approach, which measures the cost of acquiring housing rather than ongoing home ownership costs.
Most economists argued for keeping mortgage interest costs in the index the Bank uses to define its target because those costs are an important part of the household spending basket and should be considered as part of total inflation.
Next steps
- This report has been provided to the Bank’s Governing Council and the Department of Finance Canada so that the findings can be considered alongside the economic research as part of the renewal of the monetary policy framework.
- The agreement between the Bank of Canada and the Government of Canada will be renewed before the end of 2026.