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Things have gone less well in the current mandate, which began in November of 2011. Since then, the CPI has grown at an average annual rate of only 1.22%. The cumulative effect of this undershooting is a CPI level in April that was 2.5% less than what it would have been if the inflation target had been met each month.

This is a problem that the federal government hasn’t had to face yet. It was easy enough to renew the existing inflation target and express continued confidence in the Bank of Canada after a successful mandate. But what do you do when the target isn’t met?

Right now, the answer is “nothing”: the inflation target is forward-looking, and past deviations from target are forgiven, if not forgotten. Previous forecast errors are mostly important as a guide for updating future projections. But persistent deviations from target are less easy to shrug off.

There are alternatives to this forward-looking approach to inflation targeting: what if the Bank of Canada acted to offset past errors? This is the idea behind price level targeting: episodes in which inflation fell below target would be offset by a deliberate attempt to engineer above-average inflation to make up for it. If price level targeting had been in effect during this mandate, then the Bank of Canada would be aiming for an average annual inflation rate of 2.7% between now and December 2016, in order to make up for the earlier periods of too-low inflation.

Price level targeting has its supporters, both inside and outside the Bank of Canada. If the main achievement of inflation targeting has been to make inflation more predictable, then price level targeting would be a clear improvement. To the extent that short-term deviations from trend are deliberately offset by policy, the medium and long-term outlook for inflation becomes more predictable. Under inflation targeting, short-term errors accumulate as you make forecasts further out into the future; under price level targeting, these errors cancel out.