Higher inflation won’t prompt a shift in neutral stance

We expect the Bank of Canada to retain its neutral interest rate bias in next week's policy statement. Although inflation has been firmer than the Bank had expected, due to higher energy prices and the lower Canadian dollar, labour market conditions remain weak. More importantly, the housing construction boom that the Bank has been relying on to bolster the economy over the past few years is drawing to an end. With exports and business investment still lagging, the impetus for sustained economic growth appears to be fading.