Wednesday, April 16, 2008

Inflation targeting, U.S. vs Canada

Since 1991, Canada has had an inflation targeting policy. That is, by publicly providing direction as to a target inflation rate and "steering" it using monetary tools such as interest rates, the Bank of Canada is trying to stabilize inflation.

Since 1995, the target calls for 2% inflation and a bracket of 1% to 3%. There is no official inflation targeting process in effect in the Unites States. However, the central bank does make use of monetary tolls to "tweak" the economy over there as well.

Seems that a defined and predictable policy has worked pretty well for Canada since 1995 as far as its goal of stabilizing inflation is concerned.

To be noted: the inflation differentials for the period of Sept 2007 to March 2008, as well as the slope of each trend line.