The Bank of Canada faces a growing credibility challenge

In a world increasingly characterized by economic shocks and diminishing trust in public institutions, the Bank of Canada faces a growing credibility challenge: Maintain public trust as inflation is increasingly shaped by forces monetary policy cannot control.

A recent Bank of Canada staff paper finds that supply shocks since 2022 have been larger than those experienced before the pandemic. As a result, a more volatile economy makes inflation exceed the bank’s target more frequently and for longer, while increasing the likelihood that restoring price stability comes at the expense of weaker real economic activity or higher unemployment than Canadians might consider acceptable.

Still, the central bank needs to convince Canadians these difficult policy decisions are being made in their best interest.

The bank’s challenge is harder still in an environment where expertise is increasingly contested, AI is facilitating misinformation and polarization is growing worldwide.

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As it prepares to renew its five-year monetary policy framework by the end of 2026, the bank has been consulting a range of stakeholders since November, 2024, including consumers, large banks and pension funds, economists, and representatives of youth and retired Canadians. It shared information from these consultations on its website, noting that “concerns about the politicization of the bank over the past few years” came up repeatedly.

Back in 2024, the Bank of Canada’s own Public Awareness Survey found that less than half of Canadians (47 per cent) trusted it to act in their best interest. About the same proportion (48 per cent) trusted the central bank to maintain low and stable inflation.

At the end of 2024, inflation had fallen below 2 per cent, down from a 40-year peak above 8 per cent in June, 2022. It is now at 3.2 per cent, back outside the central bank’s operational range of 1 per cent to 3 per cent, much of it owing to energy prices. Core inflation, excluding food and energy, is half as much at 1.6 per cent in May, below the 2 per cent target.

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Yet such a low core number does not square with what Canadians feel.

The bank also consults with community members across Canada, recently capturing the results in a May report, which said there was “widespread concern” that the inflation figure “does not align with real-life experiences” and community members questioned whether policymakers understood the pressures ordinary households face. Many objected to excluding food and energy from measures of underlying inflation because those are among the expenses they feel most directly.

This disconnect between the inflation the bank measures and the affordability pressures Canadians experience, the stakeholder consultation summary warns, “can lead to diminished trust in inflation data and, by extension, in the bank.”

“Consumer groups noted that the bank’s communications seem tailored to market participants and business leaders as opposed to the public. This created a perception that the bank is not concerned about the impact of its decisions on Canadians’ financial well-being,” the consultation summary said.

“To foster greater confidence in the bank, many stakeholders advocated for more plain language and accessible explanations of bank decisions that relate more directly to people’s experience with inflation.”

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Plain and clear language is only one dimension of transparency, itself a cornerstone of credibility. It also depends on how information is communicated, what information is shared and whether Canadians understand how difficult it is to reach policy decisions.

The Bank of Canada has come a long way in that respect. For instance, it had resisted publishing the equivalent of the Federal Reserve’s meeting minutes for years, arguing that doing so could inhibit frank discussion within the governing council. It eventually introduced its summary of deliberations in 2023, giving Canadians greater insight into the competing views behind policy decisions. The bank holds press conferences after its policy decisions and has also provided alternative scenarios around its baseline projections when uncertainty has proved too high, as was the case from April, 2025, through January, 2026.

Should the bank go further by publishing a projected interest-rate path, as once suggested by the International Monetary Fund and similar to the Federal Reserve’s dot plot? Its own research suggests that is unlikely. A staff analytical paper found that policy-rate forecasts are typically not informative beyond one or two quarters and risk creating a false sense of certainty. The point extends beyond Canada: Fed Chair Kevin Warsh declined to submit an interest-rate projection at his first meeting as chair, stressing that such forecasts were “not helpful in the conduct of policy.”