Inflation likely to peak before end of this year

The recent pick-up in inflation has led some people to question the Bank of Canada's neutral stance on interest rates, but we think these concerns are misplaced. The recent increase in headline inflation largely reflects higher energy and food price inflation and some exchange rate pass-through effects, rather than an improvement in domestic economic conditions. After peaking in the fourth quarter of this year, we think spare capacity will drag inflation lower in 2015.