Article : Inflation rate rises to 1.9 per cent in September CTV.ca News Staff,

Date: Fri. Oct. 22 2010 7:52 AM ET

Canada's annual inflation rate rose two-tenths of a point to 1.9 per cent last month, driven largely by the cost of energy and new cars. Statistics Canada said much of the gain came from energy prices, which were 5.6 per cent higher than a year earlier. Gasoline was 3.1 per cent more expensive, and electricity was up 7.7 per cent from a year earlier.

If the Bank of Canada is concerned that the inflation rate may rise above 1.9%, should it raise or cut the target overnight interest rate (ONR)? Explain how this would affect GDP . Suppose the target ONR is 1%. What are the limits of the band within which this target ONR must be found?