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Bank of Canada Governor Mark Carney, right, looks towards Senior Deputy Governor Tiff Macklem during a press conference at the National Press Theatre in Ottawa on Wednesday, January 23, 2013.Sean Kilpatrick/The Canadian Press

For a central bank, credibility is everything. If the public doubts policy makers will keep their promises, then monetary policy will fail. One reason central bankers have been able to fight the crisis so aggressively is that executives, investors and workers believe their monetary authorities will keep inflation in check.

But does the public have an equivalent level of faith in a central bank's ability to keep the economy's engine running? It's a question worth considering as the Bank of Canada readies its second-quarter economic report, which will be released alongside its latest policy decision on Wednesday.

Canada's economy is flirting with disinflation, which is a slowing in the pace of price increases. Inflation has been tracking below the Bank of Canada's forecasts for months. The consumer price index increased an annual 2 per cent in April, 2012, right on the Bank of Canada's target. But the annual increase in the CPI has decelerated since, slowing to a mere 0.5 per cent in January. The last time prices grew so slowly was in the middle of the financial crisis in 2009.

The annual inflation rate jumped back to 1.2 per cent February, prompting some to speculate that Canada's disinflationary trend was over. Gasoline and automobile prices, which had declined in January, rose sharply.

Still, the inflation mystery is deeper than that. The Bank of Canada doesn't pretend to be a perfect target shooter. While aiming for inflation of 2 per cent, it is content if prices rise within a range of 1 to 3 per cent. Earlier this month, the Bank of Canada's quarterly Business Outlook Survey showed that 61 per cent of respondents expected inflation would be in the lower half of that range over the next two years. That's the most since the fourth quarter of 2009.

Expectations of 1 per cent inflation when the economy was growing at an annual rate of 3 per cent – as it tended to in the years before the financial crisis – would be something to cheer. But Canada's economy is growing nowhere near that fast. RBC Capital's Mark Chandler reckons the Bank of Canada will cut its growth outlook for 2013 to 1.7 per cent from 1.9 per cent. Deflated inflation expectations appear to have something to do with deflated expectations about Canada's economic prospects.

There could be structural factors at play. Clothing and footwear prices have been declining, prompting some economists to wonder if the arrival in Canada of Walmart and Target is forcing Canada's notoriously unproductive retail industry to become more efficient and competitive.

Canada's policy makers surely are paying attention to Canada's price dynamics and could offer an explanation this week. The Bank of Canada has already made clear that it has no intention of altering policy until at least next year. If the disinflation trend reasserts itself, that outlook could change.