And all borrowers can be more confident that the burden of their debt will not be increased through deflation. Low inflation also helps to win the public’s trust in the functioning of a market economy. As former Bank of Canada Governor Gerald Bouey put it, “inflation melts the glue that holds free societies together.” In Canada, we focus on inflation in a symmetric way.
In doing so, we aim to avoid inflation while also minimizing the risks of deflation. Such an approach brings important economic benefits. But it also assures creditors that the value of their investment will not be eaten away over time. And it assures debtors that the burden of their debt will not increase in the future because of deflation.