The rate of inflation has fallen farther and faster than anyone expected and is likely to continue dropping over the next few months, Bank of Canada Governor David Dodge said Wednesday.

Speaking in Vancouver, Dodge said Canadian economic growth should strengthen toward the end of 2003, despite weakness caused by SARS, mad cow disease and other one-off shocks.

Dodge conceded that growth would likely fall short of its full potential in the quarter to Sept. 30. But he said that last week’s interest rate cut was already helping the economy.

With the factors of low inflation and muted economic growth balancing each other, Dodge appeared to signal the central bank will be in no rush to change interest rates any time soon.

Dodge made no direct prediction on interest rates, which has been cut twice in the last two months due to falling inflation.

But he noted that the core rate of inflation – which excludes several volatile items and which was expected to remain above the bank’s two per cent target until early next year – has already dropped below the target, suggesting inflation hasn’t hit bottom.


http://www.bankofcanada.ca/en/press/2003/pr03-15.htm