Search

Let me start with our outlook for inflation. Higher-than-expected world oil prices mean that total CPI inflation is likely to remain above 2 per cent through the rest of this year, before falling slightly below core inflation in the second half of 2005.

Since the October 2002 Monetary Policy Report, both core and total CPI inflation have been well above the 2 per cent inflation target.

Governor Tiff Macklem discusses how monetary policy is working to bring inflation down—and how it has worked to return inflation to target over the last 25 years. He also talks about the limits of monetary policy, and why the right focus is on controlling inflation in the medium term.

Economic growth in Canada has been weak but is set to pick up. Headline inflation has risen above 3%. If oil prices and gasoline refinery margins decline as assumed, inflation should ease in the coming months. Inflation excluding gasoline remains near 2%.

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.

Inflation in Canada and around the world has been coming down. The Bank projects that inflation will stay around 3% for the next year, returning to the 2% target by the middle of 2025.

This Report outlines recent developments in the Canadian economy that affect the rate of inflation and provides an account of the measures taken by the Bank of Canada to control inflation.

There is a risk that Bank of Canada staff may inadvertently be biased when analyzing inflation: when inflation surprises on the downside, staff might emphasize negative idiosyncratic factors. When inflation surprises on the upside, staff might emphasize the positive idiosyncratic factors.

Consumers believe inflation has slowed, but expectations for inflation in the near term have barely changed. Sticky inflation expectations may be due to elevated uncertainty about near-term inflation and still-high expectations for interest rates and rent costs over the next 12 months. Long-term inflation expectations have increased from low levels. Relative to last quarter, consumers now think domestic factors supporting high inflation, such as high government spending and elevated housing costs, will take longer to resolve. High inflation and high interest rates continue to impact household budgets and spending decisions, but consumers are less pessimistic about the economic outlook. After easing for several quarters, perceptions of the labour market have stabilized, and high inflation expectations continue to support stronger-than-average expectations for wage growth.

Inflation-targeting frameworks have remained relatively stable over the past few years despite significant challenges, including prolonged low inflation, a large negative commodity price shock and rising financial stability concerns in some economies. The tools used by central banks have, however, evolved substantially. This article provides a survey of the developments in the inflation-targeting frameworks of 10 central banks in advanced economies that correspond to the three research areas of the Bank of Canada’s 2016 renewal: the level of the inflation target, the measurement of core inflation and financial stability considerations in the formulation of monetary policy.