Winnipeg Free Press - PRINT EDITION

Top bank cautious on long-term inflation

  • Print

OTTAWA -- Canada's central bank raised concerns Wednesday about the country's persistently low inflation rate, a trend the average consumer may welcome, but could lead to bigger problems.

While it sees improvements in the domestic economy, the Bank of Canada said inflation is now expected to be lower than it had previously projected -- in part because of competition among retailers.

The concern came as the Bank of Canada kept its key interest rate at one per cent, where it has been since September 2010.

Disinflation, or a slowing in the rate at which prices rise, seems to be lasting longer than expected, governor Stephen Poloz said.

It's good for consumers because it means they have more spending power, but it's "not just the gift that it sounds like," he said.

'If you are where we are today, which is significantly below target, it leaves you ill-prepared for any bad news that could happen'

-- Bank of Canada governor Stephen Poloz

Central banks are usually more preoccupied with controlling high inflation, but low inflation is equally concerning because it can be evidence of weakness in the economy and could lead to deflation, where prices actually fall.

"Deflation would be defined as not just falling prices, but also falling wages at the same time, and just imagine what that would feel like with your mortgage still the same number," Poloz said.

The bank expects the total inflation rate to remain at 0.9 per cent in the first half of 2014, down from its previous forecast of 1.2 per cent. But that should "increase very gradually" and reach the bank's ideal target of two per cent in the last quarter of 2015.

Canada's total inflation rate was 0.9 per cent in November, the seventh month in the past 13 in which the official headline inflation reading came in below the bank's desired range of between one and three per cent. Statistics Canada will release December inflation figures on Friday.

Inflation needs to be within the bank's target range so there's room to manoeuvre if there's another economic shock, Poloz said.

"So if you are where we are today, which is significantly below target, it leaves you ill-prepared for any bad news that could happen."

But Poloz made no move on interest rates, keeping the bank's key rate at one per cent and maintaining a neutral stance on whether its next move will be to raise or lower the rate from where it has been for more than three years.

The bank noted inflation in Canada is expected to "remain well below target for some time," so the "downside risks have grown in importance."

"The most important risks are stronger U.S. investment, underperformance in Canadian exports and imbalances in the household sector," it said.

Canada's economic growth in the second half of 2013 was better than expected and should pick up from an estimated 1.8 per cent last year to 2.5 per cent both this year and next, it said. Global growth -- led by stronger momentum in the U.S. -- is expected to rise from 2.9 per cent in 2013, to 3.4 per cent and 3.7 per cent in the following years.

Stronger demand in the U.S., as well as the lower loonie, should help boost Canadian exports, which will also improve business confidence and investment, the bank said in its monetary policy report.

But "despite depreciating in recent months, the Canadian dollar remains strong and will continue to pose competitiveness challenges for Canada's non-commodity exports," it said.

That was a key phrase, said BMO chief economist Doug Porter.

"This is a strong statement for the bank and as close as they will come to saying the currency is still overvalued and, thus, further depreciation is welcome," he wrote in a note.

 

-- The Canadian Press

Republished from the Winnipeg Free Press print edition January 23, 2014 B7

History

Updated on Thursday, January 23, 2014 at 7:53 AM CST: Adds photo

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Winnipeg Cheapskate: Cheap summer weekends

View more like this

Photo Store Gallery

  • Marc Gallant/Winnipeg Free Press. Local- Peregrine Falcon Recovery Project. Baby peregrine falcons. 21 days old. Three baby falcons. Born on ledge on roof of Radisson hotel on Portage Avenue. Project Coordinator Tracy Maconachie said that these are third generation falcons to call the hotel home. Maconachie banded the legs of the birds for future identification as seen on this adult bird swooping just metres above. June 16, 2004.
  • A gaggle of Canada geese goslings at Woodsworth Park in Winnipeg Monday- See Project Honk Day 05- May 07, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)

View More Gallery Photos

Poll

Will you miss Grandma Elm?

View Results

View Related Story

Ads by Google