Core inflation won’t affect the 0.25 per cent interest rate the Bank of Canada said it would keep until June 2010, a new report by CIBC World Markets forecasts.

“Look for headline and core prices to cross paths in the second quarter of 2010 at a level well under the Bank of Canada’s two per cent target,” wrote CIBC economists Avery Shenfeld and Krishen Rangasamy in the report. “As a result, Canada’s inflation rate will be no threat to the Bank easily fulfilling its pledge to keep interest rates at a slim quarter point through mid-2010.”

Shenfeld and Rangasamy disagreed with the Central Bank’s expectation of growth “above the non-inflationary potential” next year, stating that the recession’s effects are likely to linger for some time, even as the U.S. stimulus spending kicks in. Along with slow growth, the report also pointed to a negative consumer price index and a stronger Canadian dollar as contributors to keeping core inflation low.

“Indeed, if as we expect, sluggish final demand keeps the economy on a tamer trajectory than the Bank hopes, it will be able to defer the first hike until early 2011,” the report said.

John says:

This is good news for those considering a variable-rate mortgage.  Taking advantage of this over the next couple of years or more is a great long-term strategy. Remember: if this type of mortgage is set up correctly… you will always have the option to convert to the best fixed-rate for free down the road; if market conditions were to change.  Please feel free to call me and we can discuss this further.