Rebound in inflation won't change interest rate outlook

The recent pick-up in inflation, which mainly reflects volatility in energy and food prices, won't change the Bank of Canada's neutral view on rates. With exports and investment still underperforming and housing slowing, the disinflationary effects from the excess slack in the economy are likely to intensify, leaving the downside risks to the inflation outlook essentially as important as before. For the time being, however, the impact on prices from this economic weakness will be masked by the ongoing, but ultimately temporary, pass-through effects from the lower Canadian dollar.