OTTAWA: Low oil prices are creating a drag on inflation that could see it dip into the negative in Canada, the central bank's deputy governor said Thursday.
But Agathe Cote dismissed fears of deflation, in a speech to a Quebec technology association.
"Currently, short-term inflation expectations are decreasing in Canada and elsewhere, owing to the fall in oil prices," she said.
Inflation plunged to 1.5 percent in December, from 2.0 percent.
"The (central) bank predicts that this rate will continue to decline, bottoming out at a level slightly above zero in the second quarter of 2015," Cote said.
"In light of the volatility of oil prices, it is possible that inflation will dip into negative territory for a brief interval."
For this to constitute deflation, however, she said it would require a general decline in prices, and not just in gasoline prices.
Her statement was viewed by some analysts as a signal that the central bank will drop its key overnight lending rate in March or April, from a near-record low of 0.75 percent.
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