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Bank of Canada keeps 2% inflation target through 2031

Bank of Canada keeps 2% inflation target through 2031

Rule Changes

Five-year renewal holds the 1%–3% range as inflation climbs back toward 3%

6 days ago: Government and Bank renew framework through 2031

Overview

Updated 2 days ago

Canada's central bank will keep aiming for 2% inflation for another five years. On Nov. 5, the Bank of Canada and the federal government renewed the monetary policy framework, holding the target at the midpoint of a 1% to 3% range through the end of 2031.

The renewal lands at a harder moment than the last one. Consumer prices have run near 3% since April, and the Bank raised its policy rate to 2.5%, its first increase since July 2023. Governor Tiff Macklem told a Senate committee on Nov. 5 that inflation should stay at or above 3% through much of 2027 and come back to 2% around mid-2028.

Why it matters

The 2% target anchors Canadian mortgage rates, the dollar and price expectations—and it stays in place through 2031.

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Key Indicators

2%
Inflation target
Midpoint of the Bank of Canada's control range.
1–3%
Inflation-control range
The band within which the Bank aims to keep inflation.
2.5%
Policy interest rate
Raised in late October 2026, the first increase since July 2023.
3.1%
September inflation
Year-over-year change in the consumer price index.
35 years
Years at 2% target
How long the 2% midpoint has anchored the framework, per Reuters.
2031
Framework end date
The renewed agreement runs through Dec. 31, 2031.

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People Involved

Tiff Macklem
Tiff Macklem
Governor, Bank of Canada
Governor
 Francois-Philippe Champagne
Francois-Philippe Champagne
Federal Minister of Finance
Minister

Organizations Involved

Bank of Canada
Bank of Canada
Central bank
Keeps the 2% target; raised its policy rate to 2.5% as inflation rose

Canada's central bank, which sets the policy interest rate to keep inflation near 2%.
Department of Finance Canada
Department of Finance Canada
Federal department
Co-signs the monetary policy framework

The federal finance ministry, which negotiates the inflation-targeting mandate with the Bank of Canada.

Timeline

February 1991 November 2026

7 events Latest: 6 days ago
Tap a bar to jump to that date

  1. Government and Bank renew framework through 2031

    Latest Policy

    The new agreement keeps the 2% target and takes effect Jan. 1, 2027.

  2. Macklem warns inflation stays above 3% into 2027

    Economy

    In an opening statement to a Senate committee, the governor said the policy rate had been raised to 2.5%, the first increase since July 2023, and that inflation should return to 2% around mid-2028.

  3. Inflation returns to 2% target

    Economy

    After sharp rate hikes, inflation falls back to the 2% midpoint of the control range, the Bank says in its 2026 review.

  4. Inflation peaks above 8%

    Economy

    Supply chain disruptions and surging demand push Canadian inflation to its highest level in decades.

  5. Previous renewal adds employment language

    Policy

    The five-year renewal keeps the 2% target and adds a commitment to seek maximum sustainable employment.

  6. 2% midpoint set within 1%–3% range

    Policy

    The target is lowered to 2%, the midpoint of a 1% to 3% control range.

  7. Canada adopts inflation targeting

    Policy

    Canada becomes the first country to adopt an inflation target, initially set at 3%.

Scenarios

1

Bank holds 2% target through 2031

Likely Resolves by End of 2031

Discussed by: Bank of Canada and Department of Finance

The joint statement reaffirms the 2% target and runs the agreement to Dec. 31, 2031. Barring a crisis, the Bank continues to set rates to return inflation to that midpoint.

2

Government adds an explicit maximum-employment target

Possible Resolves by End of 2031

Discussed by: BMO Capital Markets economist Shelly Kaushik

Kaushik noted the 2026 statement puts less emphasis on employment than the 2021 renewal. If unemployment rises, the government could push for a formal dual mandate like the Federal Reserve's.

3

Supply shocks force an early framework review

Possible Resolves by End of 2028

Discussed by: Bank of Canada review documents

The Bank says supply shocks are becoming more frequent. A large enough shock could prompt an early review before the 2031 expiry.

4

Bank raises rates again before the new framework starts

Possible Resolves by Jan 31, 2027

Discussed by: Bank of Canada Governing Council

Macklem said there could be a need to raise the policy rate further if energy costs keep feeding into consumer prices, with decisions taken one meeting at a time. A second hike would land before the renewed agreement takes effect on Jan. 1, 2027.

Historical Context

3 moments from history that rhyme with this story — and how they unfolded.

February 1991

Canada adopts inflation targeting (1991)

Canada became the first country to adopt an inflation target, initially set at 3% and reduced to 2% by 1995. The framework was designed to anchor expectations after the high inflation of the 1970s and 1980s.

Then

Inflation fell and expectations stabilized.

Now

The 2% target became the anchor for Canadian monetary policy and a model for other central banks.

Why this matters now

The 2026 renewal extends the framework that began with that 1991 decision.

2021

2021 renewal adds employment language

The Bank of Canada and the federal government renewed the framework for five years, keeping the 2% target but adding a commitment to use the 1%–3% range to seek maximum sustainable employment.

Then

The Bank cited the employment language during the pandemic recovery.

Now

The 2026 statement uses softer wording on employment, which BMO's Shelly Kaushik said reads as more hawkish.

Why this matters now

The shift in emphasis is one of the few substantive changes in the 2026 renewal.

2022

Inflation surge (2022)

Canadian inflation peaked above 8% in mid-2022 as supply chains buckled and demand surged. The Bank of Canada raised its policy rate sharply.

Then

Inflation returned to the 2% target by 2024.

Now

The episode led the Bank to strengthen its analysis of supply shocks, a theme in the 2026 renewal.

Why this matters now

The 2026 framework explicitly addresses how the Bank should respond to larger, more persistent supply shocks.

Sources

(10)
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Bank of Canada Reuters The Logic Advisor.ca Macro Herald Tiger Brokers saskNOW Bank of Canada Bank of Canada Bank of Canada