Remarks by the Deputy Prime Minister and Minister of Finance announcing the renewal of Canada’s monetary policy framework
December 13, 2021
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Good morning, everyone.
We are here today to make an announcement about Canada’s monetary policy framework – an important topic as our country continues its recovery from the COVID-19 recession.
Let me start by highlighting the fact that we are in the midst of a strong recovery from the COVID-19 recession.
Canada has now regained 106 per cent of the jobs lost during the pandemic, compared to 83 per cent in the U.S. Job prospects for some of Canada’s most vulnerable, who bore the brunt of the pandemic’s impact on jobs – women, young people, and racialized Canadians – have greatly improved.
We’re experiencing the second strongest job recovery in the G7, the number of active businesses has surpassed its pre-pandemic level, and the unemployment rate currently stands at 6 per cent – its lowest since the pandemic began and only 0.3 percentage points above pre-pandemic levels of February 2020.
Economists have predicted, since the beginning of the pandemic, that even a strong recovery was likely to encounter challenges. And global inflation has proven to be a significant challenge that countries around the world are facing.
As global economies have unwound COVID-19-related restrictions and reopened their economies, the price of goods has gone up around the world. This is due to several factors. One is that during the pandemic, millions upon millions of people redirected the money they usually spent on in-person services towards physical, durable goods. This has put an extraordinary strain on global supply chains, leading to shortages and bottlenecks. This has been a significant driver of inflation around the world.
Furthermore, droughts in key food-producing regions, including in our Prairies, have caused grocery bills to go up. And energy prices have increased at rates not seen in decades.
Economists expect these factors to dissipate over time.
A strong monetary policy framework is the best weapon in our arsenal to keep prices stable and keep inflationary pressures in check.
Since Canada adopted an inflation-targeting framework 30 years ago, inflation has averaged close to 2 per cent. Low, stable, and predictable inflation has contributed to our country’s strong labour market performance, to our economic growth, and to our prosperity.
The federal government and the Bank of Canada believe that monetary policy can best serve Canadians by continuing to focus on price stability.
Doing so supports a strong and inclusive labour market that provides every Canadian with opportunities for a good quality of life. That is why the review and renewal of Canada’s monetary policy framework every five years is such an important moment.
I want to thank the Bank Canada and the Department of Finance for the thoroughness with which they have worked on this mandate renewal. Over the past five years, different options were considered, global best practices examined, experts consulted, and external input sought, including public consultations with Canadians.
Which brings me to why we are here today.
Today’s announcement is about continuity. The Government of Canada and the Bank of Canada are today announcing that we will renew the 2 per cent inflation target for another five-year period. The target will continue to be the mid-point of the 1 to 3 per cent inflation-control range.
Maintaining a stable environment for the prices Canadians pay is the paramount objective for Canada’s monetary policy. That has been the case for the past 30 years and that will remain the case for the next five years as well.
In focusing on price stability, we also recognize that monetary policy should support maximum sustainable employment in Canada.
When conditions warrant, the Bank will use the flexibility of the framework to actively seek the maximum level of employment consistent with price stability, as it is already doing. This is not a change to the framework. Rather, it is a recognition of existing practice.
Let me take this opportunity to commend the work and track record of the Bank of Canada – and of the Governor. The independence of institutions like the Bank of Canada matters. The Bank has a well-earned reputation as one of Canada’s most respected institutions and one of the world’s leading central banks.
That professionalism, these three decades of success, and that independence are important institutional foundations of Canada’s economic prosperity and international credibility.
I also want to thank all the academics, experts, and commentators who contributed to the important public conversations and discussions about Canada’s monetary policy framework.
Today’s renewal of Canada’s monetary policy framework is fundamental to Canada’s economic success. This is about continuity and about continuing to do what we know works. The renewed framework will keep the Bank focused on delivering low, stable, and predictable inflation.
This, in turn, will help keep life affordable for all Canadians.
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