While the Bank’s preferred measure of core inflation has trended above its 2 per cent target in recent months, financial market volatility and fresh concerns over stagnant European economic growth provide some cover to maintain the status quo. Our forecast for the Canadian economy matches that of the Bank for economic growth to average 2.5 per cent for the second half of 2014 and for all of 2015. That rate of growth should eliminate much of the estimated slack in the Canadian economy by the middle of 2016. That forecast, and traditional lags in how monetary policy impacts inflation, suggests the Bank will embark on tightening monetary policy sometime toward the end of next year.
Copyright BCREA - reprinted with permission