When oil prices plunged in late 2014, we saw both types of shock hitting the Canadian economy simultaneously. To sum up, in the absence of shocks coming from external factors, we can expect the trend of inflation to be sustainably around the midpoint of the target range when the economy is operating at full capacity and inflation expectations are well anchored on the target.
That is why I have said that “home” for the economy is at the intersection of full capacity and 2 per cent inflation. Recent Inflation Performance As I said at the outset, inflation in a number of advanced economies has been running short of expectations recently. Consider a prime example, the United States.