carolyn wilkins : release of the monetary policy report opening statement by ms carolyn a wilkins, senior deputy governor of the bank of canada, at the press conference following the release of the monetary policy report, ottawa, ontario, 24 october 2018. * * * good morning. governor poloz and i are pleased to be here to talk about today ’ s interest rate announcement and our monetary policy report ( mpr ). before we turn to your questions, let me take a couple of minutes to give you an idea of the most important issues that came up during governing council ’ s discussions. we started by noting some very positive developments. the canadian economy continues to operate near its capacity, and growth is relatively broad - based across sectors and regions. meanwhile, inflation is close to our target. what stands out is that, even with today ’ s increase in the policy rate to 1. 75 per cent, monetary policy remains stimulative. in fact, the policy rate today is still negative in real terms ; that is, once you adjust for inflation. given this context, it is natural that our discussion centred on the main factors driving economic activity and inflation over our projection horizon, and the appropriate pace for returning the policy rate to a neutral stance. let me remind you that our estimate of neutral is in a range — currently 2 1 / 2 to 3 1 / 2 per cent. it is a range rather than a point estimate because the neutral rate is unobservable and can change over time. let me talk about our assessment of inflation developments. inflation was running near the upper end of our 1 to 3 per cent target range in july and august, a little higher than we had expected in our july mpr. as we said at our last interest rate announcement in september, the staff assessment was that most of this surprise came from one component of the consumer price index : airfares. they judged that this component would be volatile over the coming months because of methodological changes by statistics canada. staff were right. the most recent data, released just last friday, show that inflation fell back to 2. 2 per cent in september, due in large part to a reversal of the airfare component. we could see further volatility from this component in coming months. importantly, our core measures of inflation remain firmly around 2 per cent. this is consistent with an economy that is operating at capacity. this episode shows just how critical it is to distinguish between the volatile elements of inflation and more persistent

, underlying pressures. labour markets are so far showing little signs of wage pressures. even with the unemployment rate near its lowest point in 40 years, underlying wage growth is running at around 2. 3 per cent. this is a backward - looking indicator, and we project wage growth to pick up in the year ahead. companies that we spoke to in our autumn business outlook survey ( bos ) expect wage gains to pick up over the coming quarters. they also told us that capacity pressures remain elevated and that labour shortages are increasing. governing council spent a considerable amount of time discussing the implications of the recent us – mexico – canada trade agreement ( usmca ). the usmca is good news because it will reduce an important source of uncertainty that has been holding back business investment. remember that we have been marking down our investment outlook because of this uncertainty. we know from our latest bos, which was completed before the agreement was reached, that business investment plans were already quite positive. firms told us they were looking to increase capacity and productivity to take advantage of a strong us economy. so, given the agreement, we have reversed some of that mark down of investment. to be prudent, we did not remove all of it, because we want to see how firms actually adjust their investment plans. this prudence is also because we know that competiveness challenges are also weighing on 1 / 2 bis central bankers'speeches investment. the approval of the lng project on the west coast adds to the good economic news, although its impact is somewhat offset by lower commodity prices. overall, the projected investment profile is higher than it was in july, increasing both actual growth and the economy ’ s potential to expand in a non - inflationary way. however, the protectionist trade actions, particularly those involving the united states and china, were also top of mind for us as they are still weighing on the global outlook. we have incorporated in our forecast the expected effects of tariffs imposed to date, as well as the dampening effects on confidence from threats of future measures. all told, we estimate that this amounts to a drag on the global economy of 0. 3 per cent by the end of 2020. that is a big cost – it adds up to more than us $ 200 billion. this represents a two - sided risk for canadian monetary policy. there is a possibility that the united states and china find a path to ease or resolve this trade conflict. this would be positive for global trade