The Bank of Canada is keeping a close eye on the latest growth data as a key gauge of inflationary pressures as it considers when to raise interest rates again, the central bank’s No. 2 official said. Senior Deputy Governor Carolyn Wilkins, speaking Wednesday in New York in a Bloomberg Television interview, reiterated the central bank will move cautiously on any future rate increases, but indicated much will depend on readings of output. The comments suggest policy makers may be inclined to look past the current weak inflation data if the nation’s economy continues to grow at rates that drive it up against capacity, while expecting inflation will eventually pick up. “Growth on the other hand, you can look at very carefully as an indication of where the economy might be going in the future, where those wage pressures could be, how the labor market is going to perform, and that is what is going to be a longer-term driver of inflation pressures in the future,” Wilkins said, adding about 75 percent of the variability in total inflation is due to consumer energy prices. Like central banks elsewhere, the Bank of Canada is in fine-tuning mode as it tries to bring historically low interest rates to more normal levels, without damaging the economy. After the bank raised rates twice this year, investors are anticipating another two hikes by the end of 2018, swaps trading suggests. Arguing against the rate increases has been persistently weak inflation, which in theory could signal to policy makers that rates should remain low. But Bank of Canada officials have been warning against reading too much into the sluggish inflation data, claiming they will rely heavily on a vast array of incoming data as they determine their next step. “In October we were clear that we think over time that less monetary stimulus is likely to be appropriate, and at the same time we were going to be cautious about it,” she said. The relationship between economic slack and inflation however hasn’t broken down, she said. “We don’t see that that relationship has gone away completely,” she said. While there is little sign of strong inflation pressures at the moment, the central bank forecasts a return to its 2 percent target in the second half of 2018. “As we look forward and we see that slack in the Canadian economy is being absorbed, well then that source of drag on inflation is going to go away,” Wilkins said. Less Stimulus Wilkins justified the two rate increases by saying Canada’s economy was “progressing quite strongly” earlier this year. Caution is now warranted as policy makers monitor inflation and the sensitivity of the economy to higher interest rates, Wilkins said. Consumers may be more sensitive to further rate increases because of record debt loads after a housing boom in Vancouver and Toronto, the senior deputy said. Government moves such as tougher mortgage lending regulations have helped to cool the market, but they don’t replace the underlying forces drawing people in, she said. “As we see in other countries, fundamentals tend to reassert themselves after a while,” Wilkins said. While home prices have shot up, wages in Canada, like in many other nations, have been subdued, and Wilkins said the reasons for that remain unclear. “As we see the economy continue to improve, wages should start to rise,” she said. For businesses, Wilkins said the risks around negotiations to renew or scrap the North American Free Trade agreement are weighing on new investments. “Canadian business are telling us that when they are thinking about investment they have to be more cautious than otherwise,” she said. The fifth round of talks on Nafta are starting up in Mexico City this week. Asked about her own future and whether she wishes to take the top job at the Bank of Canada at some point, Wilkins said she is halfway through her seven-year term and there’s still a lot of work to do under the bank’s current mandate. “It’s a bit early to be asking that question. I can tell you that I very much enjoy working for the bank.” Wilkins also commented on digital currencies like bitcoin, saying they aren’t true forms of money. “This is really an asset, or a security, and so it should treated that way,” she said. The underlying technology—a digital ledger—looks more promising for making the financial system more efficient, she said.