That did not occur this time and the result was that inflation came down with relatively little short-run cost to output, very much as was the case in 2001 and 1995. It is, of course, one of the intended effects of having an announced objective for inflation that inflation expectations be well anchored, which aids economic stability and efficiency.
To bring inflation back to 2 per cent over a period of 18 to 24 months, the Bank of Canada would lower its target for the overnight interest rate. Through its effect on market interest rates and the exchange rate, this action would increase the level of output in the economy, moving it back towards production potential.