I appreciate the question and thank you for it, in part because I think it is important for Canadians to understand that there is an agreement between the Government of Canada and the Bank of Canada that sets the mandate for the institution.
We're accountable to fulfilling that mandate, but it is delegated authority from the people of Canada through the Government of Canada, and you're right: the inflation targeting regime has been in place through successive agreements since the early 1990s and does come up for renewal at the end of 2011.
Why is the mandate 2%?
First off, there is a shared recognition of the cost of inflation, and recognition that those costs of inflation are disproportionately borne by poorer Canadians and by people who have less access to sophisticated hedging products. They're distortionary--they distort investment and other activity--and they transfer wealth between savers and debtors somewhat erratically, depending on where you end up.
One definition of low, stable, predictable inflation is 2%. The goal is to have that.
In part, one of the reasons it has been chosen in the past--and we're revisiting this and have a huge research program on whether it's the right level--is that it's low enough not to enter into people's thinking when they're making economic decisions. There is a variety of ways of showing that when people do forecasting and take activity, they think that inflation of 2% is relatively low, and they can make a distinction between rises in the relative price of a good and generalized rises in price level.
The second reason is that it's far enough away from zero that, given the volatility of inflation, one would not expect to arrive where we are right now, which is at the zero lower bound, except in exceptional circumstances. When one arrives at the zero lower bound of interest rates, the options become unconventional. It becomes extraordinary guidance, it becomes quantitative easing, and it becomes credit easing.
One of the collective judgments that will have to be made is whether it's still appropriate. Have we learned anything from the conduct of policy in Canada and elsewhere at the zero lower bound that would allow the target to be lower or a different regime to be put in place? We'll have information to make that more informed judgment and think about the trade-off of having lower inflation versus maintaining the current rate.
I'm sorry, Mrs. Block, but--