Bank of Canada says deep discounting in stores is a disinflation threat
Profound discounting by retailers is spreading disinflation said the Bank of Canada. This is a happening due to more consumers crossing the border to shop for the new arrival here of U. S. chains such as Target Corp.
The bank blamed excessive supply in the economy and discriminating competition in the retail sector, which it said are proving to be more persistent than predicted.
On Wednesday, the central bank left its key overnight interest unchanged at 1 per cent, citing a heightened risk of even lower inflation.
Canada is not yet facing deflation with outright falling prices. But inflation is now running disquietingly below the Bank of Canada's 2-per-cent target, and outside its acceptable range of 1 to 3 per cent. Consumer prices rose at a meagre annual rate of just 0.7 per cent in October, and economists anticipate inflation to stay similarly latent in the months ahead.
The Target Corp effect has somehow kept the retailers from increasing prices and in some case even lower some. U. S. discounter Target came to Canada in March, opening 124 stores by last month.
Target's presence raised the competition on rivals in a sluggish merchandising market in which cross-border shopping is still a big appeal.
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