By Steve Scherer
OTTAWA (Reuters) – The Bank of Canada will leave its inflation target at 2% in a framework renewal to be announced soon, but will include new language on the importance of employment to the economy, a source familiar with the process said on Thursday.
The framework, which expires at year-end, is reviewed every five years by the central bank and the finance ministry.
The heart of it is an inflation target, first introduced in 1991, that is 2%, the midpoint of a 1%-to-3% control range.
For the first time since 1995, the central bank reviewed not only the target but also four alternative frameworks, including average inflation targeting, a strategy the U.S. Federal Reserve adopted last year, and a dual mandate incorporating employment data.
But it is sticking with its current inflation targeting mechanism, said the source.
“The upcoming announcement will be a very clear reaffirmation of the centrality of the inflation target,” said the source, who was not authorized to speak on the record.
“But it’s not a photocopy of last time. There’s a little bit of updating to reflect what the bank is already doing – some updating of the language to reflect the consideration the bank is already giving to employment factors.”
The Bank of Canada and the finance ministry declined to comment.
Earlier on Thursday the bank’s deputy governor, Toni Gravelle, said it was concerned the factors fueling price increases, such as supply disruptions and related cost pressures, could last longer than expected, leading to more persistent inflation.
(Reporting by Steve Scherer; Editing by Denny Thomas and John Stonestreet)
