and the recent strength in quebec and british columbia normalizes. these dynamics were built into our october projection. on the federal side, the government ’ s fiscal plans are pending. the slowing of growth in canada ’ s economy has been concentrated in goodsproducing industries, which were more heavily affected by the trade conflict and by lower commodity prices. the service sector — which now accounts for about 70 percent of the economy — has continued to show solid growth for some time. our overall assessment is that the canadian economy is near capacity. however, this masks significant regional differences. oil - producing regions continue to go through a painful adjustment to lower oil prices and transportation capacity constraints, and the labour market in alberta has been weak. meanwhile, some other provinces are seeing strong growth in employment and wages. finally, inflation remains broadly on target, with measures of core inflation holding steady around 2 percent. total consumer price index inflation was 1. 9 percent in october and is expected to fluctuate around 2 percent. the october reading was slightly higher than we anticipated, because of the impact of higher airfares. inflation is expected to rise temporarily above 2 percent in the coming months, reflecting the impact of weak gasoline prices a year earlier. cpi inflation should then return to target. - 9chart 5 : the service sector continues to support economic growth a. contribution to annualized growth in gdp by industry % percentage points - 2 - 2 2017q1 2017q3 2018q1 2018q3 2019q1 services ( right scale ) construction ( right scale ) manufacturing ( right scale ) oil and gas extraction and supporting activities ( right scale ) other goods industries ( right scale ) growth in real gdp by industry, quarterly, at annual rates ( left scale ) sources : statistics canada 2019q3 last observation : 2019q3 b. exports excluding energy, index : 2015q4 = 100, quarterly data index goods excluding energy sources : statistics canada and bank of canada calculations services last observation : 2019q3 yesterday ’ s decision this takes us up to yesterday ’ s monetary policy decision. overall, the tone of developments in recent weeks gives us more confidence in the outlook for growth and inflation that we set out back in october. so, i and my colleagues on governing council decided that the current setting of the policy interest rate remains appropriate to keep inflation at our 2 percent target. - 10 in our discussion, we noted some initial signs that global economic growth is beginning to level off, as expected. in particular, we

to the economic welfare of canadians is to keep inflation low, stable, and predictable. we try to keep the annual increase in consumer price inflation at 2 per cent, which is the middle of a 1 to 3 per cent inflation - control range. if inflation expectations are well anchored, an environment of low and stable inflation can be sustained when the economy is operating at its production potential ; that is, when the economy is generating the maximum amount of output that it can without sparking inflationary pressures. economists call this amount of production the " potential output " of the economy. if the economy operates above its production potential, this can lead to upward pressure on future inflation. similarly, if the economy operates below its potential, this can lead to downward pressure on future inflation. unfortunately for central bankers, there is no way to directly measure an economy's potential output ; it must be estimated. nevertheless, we do know that growth in potential output does vary from year to year. how fast it grows essentially depends on two things : growth in the hours that our population can spend at work, and growth in the productivity of that work. the greater the number of people in the labour force, and the greater the time that they spend at work each week, the greater the output that can be produced without triggering inflation. and the higher the level of investment in machinery, equipment, and structures, again, the greater the output that can be generated without leading to inflation. of course, there is more to productivity than just the quantity of labour and capital. quality matters as well. improved education and training of the labour force can make a big difference in terms of the productivity gains that can be realized over time, as can the way a company organizes itself to get the work done. but in the interest of keeping things simple, let me focus on my main point ; that growth in potential output equals the growth in the total hours supplied by the labour force – what economists call " trend labour input growth " – plus the growth in trend labour productivity. over the past several years, the bank has estimated trend labour input to be growing at an annual rate of about 1 1 / 4 per cent, although the actual growth has been a bit higher over roughly the past 4 years. and, based on longterm trends, the bank has assumed the annual growth of trend labour productivity to be 1 3 / 4 per cent, although over the past 4 years, average productivity growth has come in well short of this figure. the