Interest Rates Should Stay Low
OTTAWA — Inflationary pressures have all but vanished in Canada amid weak economic conditions, high consumer debt and the strong dollar, giving the Bank of Canada yet another reason to keep interest rates low longer.
The country’s annual inflation rate held at 0.8 per cent for the second consecutive month in December, but an even bigger surprise was that prices dropped 0.6 per cent compared with November, suggesting retailers marked down prices to attract Christmas shoppers.
The results were much softer than analysts expected, and also weaker than the Bank of Canada anticipated in this week’s monetary policy review.
Economists said the inflation report, and expectations of similar results in the next six months, all but squelches any expectations that the central bank will be raising rates in 2013. Some said a cut to interest rates is now back in play.
“While the Bank of Canada’s recent dovish announcement quashed expectations for a rate hike any time soon, today’s inflation report put a nail in the coffin,” said economist Emanuella Enenajor of CIBC World Markets, reflecting the consensus.