On top of this, the economy is also faced with the steep decline in oil prices. Its impact is already being felt, and the inflation rate fell to 1.5 per cent in December. The Bank predicts that this rate will continue to decline, bottoming out at a level slightly above zero in the second quarter of 2015 (Chart 8).
In light of the volatility of oil prices, it is possible that inflation will dip into negative territory for a brief interval. Rest assured: even if inflation turns negative for some time, that would not constitute deflation, which requires a generalized decline in prices. When inflation expectations are solidly anchored, as is now the case in Canada, there is no reason to fear deflation.