Lane Says Canada Inflation May Turn Negative on Gasoline Drop

The damage to Canada’s economy from a drop in global crude oil prices means there’s a chance the inflation rate will turn negative, a central bank official said.

Crude oil is Canada’s top export, and the drop in prices may make some local energy projects “uneconomical” and delay the world’s 11th largest economy from returning to full output, Deputy Governor Timothy Lane said Wednesday.

“Inflation will drop to a very low level, it may even go negative for a brief period, but that’s only a one-off effect,” Lane said in response to a question after his speech in Kelowna, British Columbia.

The Bank’s surprise January interest-rate cut to 0.75 percent eased financial conditions more than policy makers anticipated, Lane said today. The deputy didn’t make any comments on what may happen to the overnight rate in coming months, in remarks coming the day before a speech by Governor Stephen Poloz in London.

“The interest rate cut had a larger immediate impact than we had built into our projections,” Lane said.

He cited other central banks that eased around the same time as helping lower yields on some bonds, adding in his speech that global growth remains disappointing.

Canada’s consumer price index advanced 1.0 percent in February from a year ago, Statistics Canada said March 20. The central bank sets interest rates to keep inflation in the middle of a 1 percent to 3 percent target band.

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