The Report reviews economic and financial trends in the context of Canada’s inflation-control strategy. Since our April Report, the Canadian economy has been hit by a number of unusual shocks: SARS, BSE, the Ontario electricity blackout, and the severe forest fires in British Columbia. Inflation has also fallen faster and further than expected. This drop in core inflation reflected several unforeseen developments.
To address this issue, it is useful to try to identify which could be the triggers of perverse market reactions. There could be both domestic and external triggers.