Article content continued

“We have a greater appreciation of this risk now than we did before the global recession, when we were more concerned about the upside risks to inflation,” Wilkins said.

Canada’s fourth-quarter gross domestic product slowed to 2.4 per cent on an annualized basis, compared with 3.2 per cent in the prior period. Poloz said growth in the first three months of this year probably stalled. Statistics Canada will release that data on May 29.

Shrinking Workforces

Another reason for accepting higher inflation predates the 2008 financial crisis. Bank of Canada and other officials warned even before then that industrialized nations faced danger from slower trend economic growth as aging populations reduce the size of the workforce. The IMF also said in April that aging populations will slow potential economic growth in both emerging and advanced economies.

“Monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialize,” according to the Washington-based group’s World Economic Outlook.

It’s healthy for Canada to review its targeting policy even if nothing changes, said Brian DePratto, an economist at Toronto-Dominion Bank.

‘Little Room’

“It’s their job to look at the alternatives and consider them,” he said of Canada’s inquiries. “Coming out of the crisis do they want to make a big change like that? It’s not clear to me.”

Poloz himself so far has left most of the discussion on inflation targets to his deputies. His main comments were in a Feb. 24 speech about reinventing central banking.

“We have learned that the interest rates associated with 2 per cent inflation leave very little room to maneuver in response to large shocks,” he said in London, Ontario. “We will need to consider the risks of any changes to the current flexible inflation-targeting regime, including any possible side effects on policy credibility, before we make any decisions.”

–With assistance from Erik Schmitz-Hertzberg in New York.

Bloomberg.com