* Will still try to keep inflation between 1 and 3 pct
* Decides against lower target, price-level targeting
* Government, bank say inflation target has proved value
* Bank of Canada now talks about "flexibility"
OTTAWA, Nov 8 The Canadian government and the
Bank of Canada agreed on Tuesday to renew without change the
the central bank's five-year mandate to target a 2 percent
overall inflation rate.
That contrasts with the dual mandate of the U.S. Federal
Reserve to target inflation and employment. The Bank of Canada
had examined and rejected the idea of lowering the inflation
target and also of targeting price levels instead.
A joint statement from the government and Bank of Canada
made no mention of adding financial stability to the
calculations when setting monetary policy.
However, Bank of Canada Governor Mark Carney has
increasingly spoken - most recently in London on Tuesday -
about the need for flexibility in terms of how quickly
inflation must return to the bank's target. Put in another way,
that could mean some flexibility in how long deviation from the
target would be permitted.
"The experience of the global economic and financial crisis
underscored the value of Canada's flexible inflation-targeting
framework," the statement said.
"The inflation-targeting framework, prudent fiscal policy
and a sound domestic financial system have helped ensure that
Canada has been one of the strongest performing advanced
economies during and following the global economic and
The statement noted that Canada was the only member of the
Group of Seven leading industrialized nations to have recovered
all of the output and all of the jobs lost during the
The renewed mandate aims to keep the overall 12-month
inflation rate within a range of 1 to 3 percent, as before.
The latest Canadian inflation data, for September, shows
inflation at 3.2 percent, outside the target range, but the
Bank of Canada projects it will fall to 1 percent in the second
quarter of 2012 before returning to 2 percent 18 months later.
On the surface, the concept of targeting price levels
instead of inflation rates would have been largely the same,
aiming at prices that would grow at 2 percent a year.
But a price-level scheme would have required the bank to
compensate for past misses, whereas under inflation targeting
bygones are bygones. Bank research had shown the price-level
scheme might be too complicated to get across.