Canada's headline annual inflation rate has fallen to its lowest level in over three years, suggesting that there is more slack in the economy than commonly perceived. With economic growth forecast to remain below the economy's potential pace this year, we therefore expect inflation to stay at the low end of the central bank's 1% to 3% target range, if not ease further. Accordingly, the Bank of Canada will have to stand guard against this risk by sustaining a highly accommodative monetary policy.
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