Bank of Canada to Consider Setting Lower Inflation Target
Nov. 27 (Bloomberg) — The Bank of Canada will study whether to adopt a stricter inflation target than the current 2 percent, which may include lowering the target rate or setting a new `price-level’ goal to make up for past misses.
The present target for the consumer price index, which was renewed Nov. 23 until the end of 2011, means the cost of living doubles every 35 years, the central bank said in a background paper released in Ottawa today. A tougher target could better protect Canadians against inflation without imposing major costs on the economy, the Bank of Canada said.
“This research is at an early stage,” the paper said. “The Bank, therefore, plans to lead a concerted research effort over the next three years.”
The central bank will start allowing for cases where it can set interest rates to return inflation to target sooner or later than the current deadline of six to eight quarters. The Bank of Canada will publicize if there are situations such as a surge in asset prices where it is better to take longer to reach the target, or if low inflation means it can be done faster.