Below target inflation leaves little room for error

The recent slowdown in all three new core inflation measures suggest that the excess slack in the economy is building. The core CPI-common measure, which tracks the output gap most closely is of particular concern. The Bank of Canada expects above-potential GDP growth this year to close the output gap and push the core inflation rate back toward the 2% target by mid-2018. But with core inflation now dangerously low, the Bank really doesn’t have room for error.