Calls for the Bank of Canada to adopt the general inflation index in its monetary messages

Ottawa —
The Bank of Canada is facing increasing calls to refocus on the overall inflation rate as the main indicator in its communication with the public, as the bank and the federal government prepare to renew the monetary policy framework later this year.

Public consultations conducted by the bank revealed that economists, research centers, and concerned parties believe that the repeated reliance on several core inflation measures has sometimes confused the public and markets, weakening the clarity of messages related to interest rate decisions.

The consultations showed strong support for maintaining the inflation target at 2% annually according to the Consumer Price Index, but participants emphasized the need for overall inflation to be at the forefront of official discourse, as it represents the actual target understood by citizens and linked to their daily experience with prices.

The bank pointed out that core inflation measures, such as indicators that exclude some volatile items or use moving averages, remain useful for internal analysis, but are difficult for the general public to understand, and may create the impression that the bank changes the indicator it relies on depending on circumstances.

Some observers criticized the multiplicity of measures used in recent years, considering that the bank sometimes focused on different core inflation indicators or short-term averages, making it unclear which measure was most influential in monetary policy decisions.

This review comes after the sharp wave of inflation that Canada experienced in 2022, when inflation reached unprecedented high levels in decades, putting the Bank of Canada under great pressure to explain its decisions and rebuild public confidence in its ability to control prices.

The consultations also showed that many Canadians do not distinguish between inflation and the price level itself, as citizens see that a decline in inflation does not necessarily mean a decrease in prices, but merely a slowdown in the rate of increase. Bank experts called for greater effort to clarify that the bank’s mission is to target the inflation rate, not to directly solve the affordability crisis.

The bank also received feedback calling for reaffirming that price stability is the core of the monetary mandate, with demands to remove or reduce the language of the “sustainable maximum employment” that was added to the monetary policy framework in 2021, so that the mandate does not appear to be dual between inflation and the labor market.

These consultations reflect a fundamental challenge facing the Bank of Canada: maintaining precise analytical tools to understand price trends, while providing simpler and more consistent communication to the public and markets during a sensitive phase of monetary policy.