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Inflation expectations are a key determinant of actual and future inflation and thus matter for the conduct of monetary policy. We study how firms form their inflation expectations using quarterly firm-level data from the Bank of Canada’s Business Outlook Survey, spanning the 2001 to 2015 period.

This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on March 6, 2024.

The issue addressed in this article is the extent to which monetary policy in Canada should respond to asset-price bubbles. The article concludes that maintaining low and stable consumer price inflation is the best contribution that monetary policy can make to promoting economic and financial stability, even when the economy experiences asset-price bubbles. In extreme circumstances—when an asset-price bubble is well identified and likely to have significant costs to the economy when it bursts—monetary policy might better maintain low and stable consumer price inflation by leaning against a particular bubble even though it may mean that inflation deviates temporarily from its target. Such a strategy might reduce the risk that a crash in asset prices could lead to a recession and to inflation markedly below target in the longer run. The circumstances where this strategy is possible will be rare because economists are far from being able to determine consistently and reliably when leaning against a particular bubble is likely to do more harm than good. Housing-price bubbles should be a greater concern for Canadian monetary policy than equity-price bubbles, since rising housing prices are more likely to reflect excessively easy domestic credit conditions than are equity prices, which are largely determined in global markets.

This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on July 12, 2023.

The invitation is timely, given that the Bank of Canada's inflation-targeting agreement with the Canadian government is up for renewal next year. At the Bank, we are always reflecting on our framework, deciding what works well and what we can improve. Against that backdrop, we have watched with interest the debate taking place here in the United States - inside and outside the Federal Reserve - about whether that institution should join the ranks of inflation-targeting central banks.

The trade conflict has made the outlook for the Canadian economy highly uncertain. There is a range of scenarios for how US trade policy could unfold, which leads to a wide range of outcomes for Canadian inflation and economic growth.

Why prices change, and what it means for the economy.

The ongoing trade conflict is fundamentally reshaping Canada’s economy and will have a lasting negative impact on economic activity. At the same time, the reconfiguration of global trade and domestic production is putting upward pressure on costs. Reflecting these two competing forces, inflation remains near the 2% target over the projection horizon.

Governor Tiff Macklem discusses key issues involved in the Governing Council’s deliberations about the policy rate decision and the MPR.

Commentary and technical data relating to the 2021 renewal.