By Paul Vieira

OTTAWA--The Bank of Canada should publish a forecast for interest rates to demonstrate to the public how borrowing costs are expected to change to keep inflation at 2%, an influential Canadian think tank recommends.

The C.D. Howe Institute said in a piece it published Tuesday this could help keep inflation expectations anchored at 2%. Besides total, or headline, inflation, Bank of Canada officials also lean on other gauges of core prices, which strip out volatile items such as food and energy, to help craft policy decisions. Central bank officials view core inflation as being less volatile than total inflation, while still tracking total price trends over the long term.

The Bank of Canada's shifting emphasis on different inflation measures "can create confusion about which one is most relevant for people. Consequently, these measures do not make for good communication tools," say the authors, among them are the think tank's president, Jeremy Kronick.

The solution, the Toronto-based think tank said, is to focus on headline inflation's path over a period like eight quarters, "together with a forecast for interest rates that generates this inflation path."

The authors recommend that this approach be incorporated in the inflation-targeting agreement between the central bank and the country's Department of Finance. That agreement, which compels the Bank of Canada to achieve 2% inflation through rate policy, is up for renewal later this year. The central bank has previously signaled it is not recommending a change to the 2% target.

In its last rate-policy decision, the Bank of Canada kept its main interest rate unchanged at 2.25%, saying that headline inflation rose to 2.8% while noting measures of core inflation moved down to around 2%.

In 2016, the Bank of Canada introduced three new measures of core inflation which it judged to be a more statistically robust set of consumer-price index indicators. The central bank has since said it would no longer rely heavily on one of those measures due to concerns about its reliability.

The Federal Reserve releases at every other meeting something known as a dot plot, reflecting the individual interest-rate forecasts of its 19 Federal Open Market Committee members. Fed officials say the dot plot isn't an agreed-upon plan or promise.

Meanwhile, the central banks in Norway and New Zealand publish the type of interest-rate forecast that the C.D. Howe is advocating for. The Norweigan experience, the paper said, has helped reduce market volatility and led to a better alignment of inflation expectations.

The authors of the C.D. Howe paper said publishing an interest-rate forecast would increase transparency with the Canadian public. The central bank could explain its interest-rate forecast alongside other projections for inflation and growth, while highlighting their conditional nature. The idea is to improve the level of insight "to the public as to how the central bank responds to new economic information," the authors said.

"People need to know that inflation is well anchored at 2% and have confidence that the bank's current and future policy decisions ensure that it remains so. This can be done without them needing to understand technical measures of core inflation," the paper concluded.


Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

06-16-26 0615ET