canada. the bank recently decided to fill this gap by creating a new survey. ehrmann, m. 2014. “ targeting inflation from below – how do inflation expectations behave? ” bank of canada working paper no. 2014 – 52. cunningham, r., b. desroches and e. santor. 2010. “ inflation expectations and the conduct of monetary policy : a review of recent evidence and experience. ” bank of canada review ( spring ) : 13 – 25. the importance of monitoring the inflation expectations of various economic agents has been recognized for a long time. what recent research has highlighted, however, is that we must also apply this approach to our models. compared with october, the february consensus economics forecast for total cpi inflation for 2015 declined by 1. 1 percentage points to 0. 8 per cent. the forecast for total cpi inflation for 2016 is 2. 1 per cent. there is also a slight downward shift in the results of the bank ’ s winter business outlook survey. ehrmann, m., d. pfajfar and e. santoro. 2014. “ consumer attitudes and the epidemiology of inflation expectations. ” bank of canada working paper no. 2014 – 28. bis central bankers ’ speeches to that end, the bank examined the various techniques used to measure the inflation expectations of households elsewhere in the world and largely based its approach on the one created by the federal reserve bank of new york. 12 the bank ’ s new quarterly survey is an online poll of 1, 000 canadian consumers. it measures both the inflation expectations of participants over various time horizons and the uncertainty surrounding them. a preliminary analysis of the responses from the first wave of the survey, conducted last november, is promising. indeed, the inflation rate perceived by households is similar to that measured by the cpi over the past year. as well, when households were asked to evaluate the probability of various inflation outcomes over the next two years, their answers centred around the bank ’ s 1 to 3 per cent target range. this is an encouraging sign that household expectations are anchored to the target. our new household survey also covers a wide array of other economic expectations that will inform the bank, and canadians in general, on issues ranging from labour market prospects to personal finances. the power of our new tool will truly reveal itself after we have conducted the survey several times, giving us the ability to compare results over time and analyze trends. we will present detailed findings later this year after taking the time

. when the demand for goods and services causes the economy to operate near capacity, there is upward pressure on prices. conversely, a shortfall in demand tends to put downward pressure on prices. however, a wide variety of factors can complicate the analysis of inflationary pressures, such as the transitory impact of exchange rate fluctuations or sector - specific price movements. in recent years, the behaviour of inflation in canada and other advanced economies has been surprising, even when we take into account these temporary factors ( chart 1 ). indeed, following the global financial crisis, the dynamics of inflation gave rise to two puzzles. the first emerged in 2010 – 11, when inflation rates were consistently higher than expected, bis central bankers ’ speeches even as economic slack reached its highest level in recent history ( chart 2 and chart 3 ). the unexpected stability ( or even, in some cases, increase ) in inflation during this period led some economists to liken inflation to the dog that did not bark in the sherlock holmes story. 1 the second puzzle was initially observed in 2012 ( and lasted until at least mid - 2014 ) : inflation fell rapidly at the same time that the global economy was recovering and the output gap was shrinking. once again, inflation surprised us – this time by its weakness. the contribution of household inflation expectations given inflation ’ s importance to central banks, it is not surprising that a number of studies have examined its unusual behaviour during the crisis. several hypotheses have been proposed, including the possibility that the sensitivity of inflation to the output gap, or to its persistence, has changed, or that the extent of excess capacity had been misjudged. it is also possible that the effects of exchange rate fluctuations, commodity prices or the increasing trade with china were underestimated. our own work at the bank, as well as that of other researchers, suggests that inflation expectations can help us resolve the twin puzzle. using econometric models that allow us to quantify the effect of individual variables on inflation, we learned that including household expectations with the usual determinants of inflation enabled us to explain a good portion of inflation dynamics in advanced economies since the crisis. 2 household expectations increase the predictive power of models, even when those models already incorporate the expectations of professional forecasters. in the united states, household expectations help explain the apparent stability of inflation after the crisis, as they increased following the rapid rise in oil prices and counteracted the output gap ’ s dampening effect. 3