The rise in core inflation further above target doesn't change the interest rate outlook, since that increase mainly reflects the temporary effects of a weaker currency, which the Bank believes will fade after next year. With material excess slack in the economy and falling oil prices threatening the outlook for economic growth and headline inflation, we think the Bank of Canada will stick with its neutral policy stance. The OECD's view that rates should rise in the first half of next year appears badly misplaced.
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