Monetary Policy Report

Since the October Monetary Policy Report, three developments have led the Bank of Canada to modify its outlook for economic growth and inflation in Canada.

In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

Since the April Monetary Policy Report, there have been a number of unanticipated developments that have changed the outlook for inflation and economic activity in Canada.

The global economic outlook has been clouded by a high degree of uncertainty, accentuated most recently by the war in Iraq.

At the time of the October Monetary Policy Report, the Bank projected that core inflation would rise in the fourth quarter of 2002, reflecting a combination of one-off factors - including the rise in insurance premiums - and the “echo effect” from developments towards the end of 2001.

Over the past year, Canada’s economy has outperformed the economies of virtually all the other major industrial countries.

t the time of the April Monetary Policy Report, it was evident that a robust economic recovery was underway in Canada.

At the time of last November’s Monetary Policy Report, two issues dominated the analysis: the global economic slowdown and the fallout from the September terrorist attacks.

In the November Monetary Policy Report, the timing and extent of the recovery in economic activity in Canada this year was seen as depending crucially on geopolitical developments and on how quickly consumer and business confidence would return to normal.

Two major issues dominate the analysis and policy discussion in this Monetary Policy Report: the nature and extent of the global economic slowdown that began late last year and the consequences of the terrorist attacks in the United States.