The annual inflation rate was 2.7 per cent in 2000. Prices tend to go up when demand from consumers exceeds the normal capacity of producers to supply goods and services. An excess supply of goods and services tends to put downward pressure on prices. The costs of high and unstable inflation can be severe. High and unstable inflation undermines the economy's ability to generate long-lasting growth and job creation.
High inflation erodes the value of incomes and savings.
People on fixed incomes, including many elderly and poor Canadians, are particularly vulnerable to inflation. The monetary policy of the Bank of Canada is aimed at harnessing the benefits of low inflation . Among other things, a credible commitment to keeping inflation low helps create a positive climate for low interest rates and productive long-term investment. This in turn strengthens the growth of the economy and its capacity to generate new jobs. Monetary policy in Canada is guided by an inflation-control target .