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One nation under two per cent: Is it time for a shake-up of the economy’s most important number? 

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“The fact that we have a clear and simple framework is golden,” Carolyn Wilkins, the Bank of Canada’s senior deputy governor, said at a conference on Wednesday.

Yet it took a lot of trial and error — as well as annual inflation that spiked more than 12 per cent in 1981 — before the Bank of Canada began targeting inflation in 1991. In doing so, the bank, which opened its doors during the Great Depression, became one of the first central banks to make inflation targeting a pillar of its monetary policy.

The fact that we have a clear and simple framework is golden

Carolyn Wilkins, senior deputy governor, Bank of Canada

Now, every five years, the Bank of Canada’s governor and the federal finance minister agree on a mandate, and then the government essentially leaves the central bank alone to complete its mission. Essentially, officials have since 1991 believed that aiming for two-per-cent inflation, the middle-ground of a target range between one per cent and three per cent, was the way to go. Agreements struck between the central bank and the government in 1993, 1998, 2001, 2006, 2011 and 2016 all basically came to the same conclusion: two per cent.

But Canada’s central bank is currently in the middle of its next mandate review, and for the first time since the two-per-cent target was adopted, there are obvious cracks in the consensus.

In May 2018, 61 Canadian economists signed a letter to former finance minister Bill Morneau requesting the Bank of Canada consider not just inflation, but also full employment — the point at which anyone who wants a job can find one — in making interest-rate decisions.

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