Monetary PolicyReportOctober 2023Canada’s infl ation-control strategyCanada’s infl ation-control strategyInfl ation targeting and the economy The objective of Canada’s monetary policy is to promote the economic and fi nancial well-being of Canadians. Canada’s experience with infl ation targeting since 1991 has shown that the best way that monetary policy can achieve this goal is by maintaining a low and stable infl ation environment. Doing so fosters confi dence in the value of money and contributes to sustained economic growth, a strong and inclusive labour market and improved living standards. In 2021, the Government of Canada and the Bank of Canada renewed the fl exible infl ation-targeting strategy of the monetary policy framework for a further fi ve-year period, ending December 31, 2026.1 The infl ation target was renewed at the 2% midpoint of the 1%–3% control range, with infl ation measured as the 12-month rate of change in the consumer price index (CPI). The Government and the Bank agreed that the best contribution monetary policy can make to the economic and fi nancial well-being of Canadians is to continue to focus on price stability. The Government and the Bank also agreed that monetary policy should continue to support maximum sustainable employment, recognizing that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time. Further, the Government and the Bank agreed that because well-anchored infl ation expectations are critical to achieving both price stability and maximum sustainable employment, the primary objective of monetary policy is to maintain low, stable infl ation over time. Infl ation targeting is symmetric and fl exible Canada’s infl ation-targeting approach is symmetric, which means the Bank is equally concerned about infl ation rising above or falling below the 2% target. Canada’s infl ation-targeting approach is also fl exible. Typically, the Bank seeks to return infl ation to target over a horizon of six to eight quarters. However, the most appropriate horizon for returning infl ation to target will vary depending on the nature and persistence of the shocks buffeting the economy. The 2021 agreement with the Government specifi es that the 2% infl ation target remains the cornerstone of the framework. The agreement further notes that the Bank will continue to use the fl exibility of the 1%–3% control range to actively seek the maximum sustainable level of employment, when conditions warrant. The Bank will also continue to leverage the fl exibility inherent in the framework to help address the challenges of structurally low interest rates by using a broad set of policy tools. The Bank will use this fl exibility only to an extent that is consistent with keeping medium-term infl ation expectations well ...
