How Has Inflation Changed in Canada? A Comparison of 1989­2001 to 1964­1988

Has the inflation process fundamentally changed in Canada in the last decade? We compare the dynamics of inflation from 1964 through 1988 to the dynamics of inflation from 1989 to 2001. Although the average rate of inflation fell and inflation has become less variable since 1988, we conclude that the dynamics of inflation have not changed substantially. A negative output gap reduces inflation and the adjustment of expected inflation to lagged actual inflation continues to be slow. The sacrifice ratio, the short-run inflation-output trade-off remains similar. The makers of monetary policy in Canada face the same trade-offs before and after 1988.