uncertainty about the production potential of our economy at this time of structural change, the bank is now monitoring a wide range of indicators for early - warning signs of pressure on capacity and prices. up to now, our inflation performance has been somewhat better than we had expected. while the increase in the total cpi over the past 12 months to january was 2. 3 %, our core rate of inflation ( excluding food, energy, and the effect of changes in indirect taxes ), at 1. 3 %, remains in the bottom half of the 1 to 3 % target range. this good inflation performance bodes well for the continued expansion of the canadian economy. but what remains to be seen is whether this expansion will bring with it strong productivity gains for canada similar to those witnessed in the united states. one thing is clear. the job of the bank of canada must be to keep inflation in canada low and stable. without that, we will be risking both the economic expansion and the potential productivity gains.

won, ignoring the consequences of his or her actions on mortgageholders or corporate borrowers. fortunately, there are some signs that global banks are returning to their roots. complex securitisation chains have dissolved. mechanistic reliance on credit ratings is declining. with higher capital requirements on trading activities ( and the prospect of structural restrictions ), traditional lending is looking more attractive. these shifts will promote diverse private sector judgments, reduce cliff effects and build resilience, and possibly over time, a measure of trust. but there arguably has not yet been a full recognition of the need for banks to return to what ed clark calls “ old fashioned banking – activities that help grow their country and communities. ” 4 to do this, some banks may need to reconsider their values. core values the fifth “ c ” – core values – is the responsibility of the financial sector and its leaders. their behaviour during the crisis demonstrated that many were not being guided by sound core values. many in the wake of the crisis looked first to how compensation affects behaviour. indeed, an important lesson was that compensation schemes that delivered large bonuses for short - e. clark, “ building a better banking system for america ” ( speech to chief executives ’ club of boston, boston college, boston, ma, 26 april 2012 ). bis central bankers ’ speeches term returns encouraged individuals to take on too much long - term and tail risk. in short, the present was overvalued and the future heavily discounted. to better align incentives with long - term interests of the firm and, more broadly, society, the fsb developed principles and standards for sound compensation practices. core elements include deferred variable performance payments, paying bonuses in stock rather than cash, and introducing bonus clawbacks. of course, no compensation package can fully align the incentives of a bank ’ s shareholders and its risk - takers. even if such a package could be devised it would not internalise the impact of individual actions on systemic risks, including on trust in the banking system. more fundamentally, to think that compensation arrangements can ensure virtue is to miss the point entirely. integrity cannot be legislated, and it certainly cannot be bought. it must come from within. purely financial compensation ignores the non - pecuniary rewards to employment, such as the satisfaction received from helping a client or colleague succeed. when bankers become detached from end - users, their only reward is money, which is generally insufficient to guide socially useful behaviour. 5