Deputy Governor Paul Beaudry explains why the 2% target remains the centrepiece of the Bank of Canada’s inflation-targeting framework in recent speech.

“Canadians know inflation is too high right now. But many may wonder why the Bank’s goal is to get inflation back to 2%.

Because people are more aware of inflation, they are more likely to look at recent price gains when deciding how much they expect costs to rise in the future. This can lead to high inflation that is more persistent, volatile and self-perpetuating.” said Deputy Governor Beaudry.

“High inflation, in turn, makes it harder for everyone to plan how to spend and invest. Companies may find it harder to make key decisions for growing their business when they don’t feel confident about where costs will be. This uncertainty leads to more ups and downs in the job market, which is bad for workers.

If inflation stays above target for a significant amount of time, then high and variable inflation will likely go hand in hand with a less efficient, more distorted economy.”

Click here to read the full speech.