The Bank of Canada's communications regarding its monetary policy decisions are overly technical and challenging for the general public to grasp, according to a new report from the C.D. Howe Institute. The report emphasizes the need for clearer explanations on how officials plan to return headline inflation to the two per cent target.
Released on Tuesday, the report recommends that the central bank prioritize its projected headline inflation trajectory over the policy horizon—typically the next six to eight quarters—alongside an interest rate forecast that would achieve that inflation path. This approach would enable policymakers to clearly articulate how future overnight rates can reduce inflation to the two per cent target, thereby influencing medium-term inflation expectations.
Currently, the Bank of Canada relies on core inflation measures to guide and communicate its monetary policy decisions. It publishes four Monetary Policy Reports annually, containing headline inflation forecasts and core measures, but offers limited information on the overnight rate path needed to return to the two per cent goal.
The report argues that core inflation measures, while useful for internal analysis, are confusing for the public. The central bank frequently changes its preferred core measure, and the associated analytical complexity often diverges from people's actual inflation experiences, such as rising food, shelter, and gasoline prices. This makes core measures largely irrelevant for guiding public inflation expectations.
“It’s difficult for the public to understand. They need to start de-emphasizing core measures as part of their communication strategy and instead focus on explaining more thoroughly how they’re getting inflation back down to two per cent,” said Steve Ambler, co-author of the report and a fellow-in-residence at the C.D. Howe Institute. “This could actually reinforce the central bank’s credibility. If it’s communicated well, the public should be able to understand it, and it reinforces the idea that the Bank of Canada is committed to getting inflation back to target within its typical forecast horizon.”
The report arrives as the Bank of Canada and the Government of Canada review the monetary policy framework, which is set for renewal by the end of 2026. The current framework targets two per cent inflation within a range of one to three per cent. The central bank has stated that since 1995, this framework has proven effective for maintaining price stability.
The Bank of Canada declined to comment directly on the report, but spokesperson Paul Badertscher noted that the bank is gathering views as it prepares for the framework renewal later this year. However, the bank has acknowledged communication challenges with the public. In a speech last October at the Ivey Business School in London, Ontario, former deputy governor Rhys Mendes discussed the difficulties in measuring and communicating underlying inflation.
