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Disinflation and the lurking threat of deflation – not growth – has become the new preoccupation of Stephen Poloz and central bankers.CHRIS WATTIE/Reuters

Of all the economic signs that Bank of Canada governor Stephen Poloz watches these days, none is more problematic than inflation.

Consumer prices edged up a minuscule 0.7 per cent in October in Canada. That's not just well below the central bank's 2-per-cent target, but below the bottom end of its 1- to 3-per-cent target band.

"That carries a lot of weight at the Bank of Canada," Bank of Montreal economist Sal Guatieri said. "So there is no way [the bank] would revert to a tightening bias when inflation is so low."

Statistics Canada reported Friday that the Canadian economy surged ahead at a 2.7-per-cent clip in the three months that ended in September, faster than it has in two years.

But disinflation and the lurking threat of deflation – not growth – has become the new preoccupation of central bankers.

That almost certainly means Mr. Poloz will do nothing Wednesday when the bank is due to make its next interest rate announcement. It comes barely six weeks after the Bank of Canada dropped its long-held signal that rates were heading higher in favour of a neutral stance.

"The bank will remain very much in neutral," said David Madani of Capital Economics in Toronto.

The bank has held its key overnight rate at 1 per cent since September, 2010.

Its neutral stance implies that the bank's next move is just as likely to be a rate cut as a rate hike. Mr. Poloz recently dismissed a suggestion by the Paris-based Organization for Economic Co-operation and Development that Canada should raise rates starting next year to cool the housing market.

Many economists say a rate hike is unlikely before 2015. In fact, Mr. Madani expects Mr. Poloz to signal a possible rate cut next year. "We still think that any change in interest rates over the next 12 to 18 months is more likely to be a cut rather than an increase," he said in a research note.

But conditions are looking better in the third quarter. GDP grew at an annual rate of 2.7 per cent, up from 1.6 per cent in the second quarter and 2.3 per cent in the first quarter.

A rebound in exports, which remains elusive, is highly dependent on stronger U.S. growth and a pick-up in the global economy. "The long anticipated rotation from private consumption and government spending to exports and business investment is still nowhere to be found," according to Mr. Madani.

That's why the other thing Mr. Poloz is no doubt watching closely is the dollar: A cheaper currency has the power to boost exports, and reverse disinflation at home.