PBO expects inflation to fall to 2% by end of year, deficit to grow amid weak economy

The parliamentary budget officer is projecting inflation will return to the Bank of Canada's two per cent target by the end of the year and the federal deficit will grow amid weakening economic conditions.

The budget watchdog released the latest economic and fiscal outlook today.

The report predicts the central bank could begin cutting interest rates in April, given the expectation that inflation will fall back to target by the end of 2024.

The PBO also anticipates the federal budget to grow to $46.8 billion for current fiscal year, which would exceed the government's fall projection of $40 billion.

But the Canadian economy is expected to grow by less than one per cent this year as high interest rates continue to weigh on consumers and businesses.

The report warns that if the Bank of Canada keeps interests rates higher for longer than expected, the deficit could be even higher and the economy weaker.