Low inflation may soon prompt easing bias

Inflation has remained at the bottom of the Bank of Canada's 1% to 3% target range for over a year now, highlighting why the Governor is in no hurry to raise interest rates anytime soon. (See Chart.) Should the economy struggle again this year as we expect, disinflationary pressures will intensify. But the Canadian dollar's recent decline will prevent inflation from falling any further. Nevertheless, at some point this year, we would expect the Bank of Canada to signal an easing bias, which will put even more downward pressure on the dollar.