Even with Inflation rearing its ugly head, the Bank of Canada is confident this is a short blip and things will simmer back down in terms of the Core Consumer Price Index. With this in mind the Bank of Canada decided to keep their key overnight rate at 1.0% for the next little while, which is good news for borrowers, and not for those holding CSBs and such.
The loose money policy looks to continue for the forseeable future thanks to a very conservative (if not bleak) view of Canada’s economic growth over the next period of time:
Overall, the Bank expects that growth in Canada will be slow through mid-2012 before picking up as the global economic environment improves, uncertainty dissipates and confidence increases. The Bank projects that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013.
The Bank of Canada does have a very optimistic viewpoint for inflation, though:
The weaker economic outlook implies greater and more persistent economic slack than previously anticipated, with the Canadian economy now expected to return to full capacity by the end of 2013. As a result, core inflation is expected to be slightly softer than previously expected, declining through 2012 before returning to 2 percent by the end of 2013. The projection for total CPI inflation has also been revised down, reflecting the recent reversal of earlier sharp increases in world energy prices as well as modestly weaker core inflation. Total CPI inflation is expected to trough around 1 per cent by the middle of 2012 before rising with core inflation to the two per cent target by the end of 2013, as excess supply in the economy is slowly absorbed.
So it looks like gas prices may drop off and they are hoping that will cool off our inflationary cycle? I certainly hope that might be the case, just so I can keep a few more dollars in my pockets. As long as their version of inflation keeps hanging around 2.0% we are safe in terms of interest rate increases (but that relies on lower or stable gas prices, doesn’t it? Hmmm….).
