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15. Inflation Control Targets (Ch10-11)

Principles of Macroeconomics (with Xtra!)

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I nflation-control targets were adopted in February 1991 for a five-year period by agreement between the Government of Canada and the Bank of Canada. The inflation rate in 1991 was 5.9 per cent as measured by the consumer price index . The initial goal was to reduce inflation to progressively lower levels, first to 3 per cent, then to 2.5 per cent, then to 2 per cent, to ensure a climate favourable for long-lasting economic growth. By December 1993, inflation had been reduced to 2 per cent. At that time, the government and the Bank agreed to extend targets for three more years to the end of 1998. The target range was 1 to 3 per cent. In February 1998, with inflation well- contained in the range, the existing targets were extended to the end of 2001. The government and the Bank agreed that before that time they would jointly determine an ‘‘appropriate long-run target consistent with price stability.’’ An important tool for monetary policy The inflation-control targets assist the Bank in determining what
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