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Before looking at the details in the latest CPI (released last Friday), let’s highlight a few phrases from the BoC’s oft repeated inflation-control strategy, which it includes at the front of each Monetary Policy Report (MPR).
- At the heart of its inflation-control strategy, the BoC believes that “that the best way to foster confidence in the value of money and to contribute to sustained economic growth, employment gains and improved living standards is by keeping inflation low, stable and predictable”.
- Further to that point, the BoC’s inflation-targeting approach is symmetric, meaning “that the Bank is equally concerned about inflation rising above or falling below the 2 per cent target”.
As you will see in a moment, that last phrase is critical in the current context. If the BoC’s monetary policy actions are primarily governed by the goal of steering inflation towards 2% over time, then current CPI trends clearly imply that the BoC’s next move in its overnight rate should be a decrease, rather than the increase it has repeatedly warned us about.