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Business sentiment remains negative. While some indicators have inched up from historical lows, the results of the spring survey continue to suggest a weak outlook for the Canadian economy.

Examination of progress in the Bank’s exploration of two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target; a review of arguments for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting; assessing the merits of price-level targeting vis-à-vis inflation targeting from a debt-revaluation perspective; quantifying redistribution of wealth in Canada in the face of unexpected inflation.

It has been a difficult year. The financial turmoil that began mid-2007 deteriorated into a full-blown global financial crisis through 2008. While the resilience and soundness of the Canadian financial system were in many respects exceptional, the scale of the financial crisis and the subsequent global recession had an increasing impact by year’s end on our financial system and our economy.

The outlook for the global economy has deteriorated significantly since the October Monetary Policy Report. The financial crisis intensified last autumn and spilled over into an already weak global economy, which, in turn, put further strains on the financial system.

Erratum: In Table 1 Interest Rates, the column "Estimated variable mortgage rate" should read 5.65 per cent for 4 December 2007 not 5.25.

Business sentiment has deteriorated markedly since the autumn survey, as the effects of the international financial crisis and the weak global economy intensified and spread to domestic demand. Almost all indicators are at their lowest level since the survey began in 1997.

Cover page

Chargex

The artefacts on the cover are part of the National Currency Collection of the Bank of Canada.

Photography by Gord Carter