Lawrence Schembri: Getting to the core of inflation

Remarks by Mr Lawrence Schembri, Deputy Governor of the Bank of Canada, at the Department of Economics, Western University, London, Ontario, 9 February 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Thank you for the invitation to speak to you today. In October, the Bank of Canada renewed its agreement on the inflation-control target with the federal government for the sixth time since 1991. The target is a critical component of our monetary policy framework, which also includes a market-determined flexible exchange rate.

It's not often that a policy performs better than expected. Our inflation-control target did just that and continues to do so.

Over the past 26 years, we have reduced consumer price index (CPI) inflation and maintained it at a level close to our 2 per cent target, with no persistent episodes of inflation outside our inflation-control range of 1 to 3 per cent (Chart 1). Because inflation has been low, stable and predictable, Canadians have been able to make better economic decisions and achieve better economic outcomes. Consequently, real output has expanded at an average rate of close to 2 1/2 per cent per year. In addition, there has been much less volatility in inflation, interest rates and real GDP growth.