pegged to the u. s. dollar. it is true that in a period of high, and potentially rising, inflation, a depreciating currency adds to the confusion about what is happening to relative prices and contributes to an attitude that any cost increases can be passed on. thus, businesses may not be as concerned about improving productivity as a cost - cutting measure. but that is not the case in canada today - inflation is low and stable, and the bank is committed to keeping it that way. businesses know that they will generally not be able to pass on cost increases, and so they focus on cost control. the argument that a depreciated currency tends to discourage productivity improvements also ignores today ’ s powerful global competitive forces and the strong drive of businesses to increase their market share and their profits as well as raise the prices of their stock. in my judgment, our floating exchange rate works well. it absorbs the impact of, and facilitates the adjustment to, extraordinary shocks that hit our economy from time to time, such as the sharp drop in primary commodity prices in 1997 - 98. as part of that adjustment, the low canadian dollar has encouraged businesses outside the primary industries to expand their presence in foreign markets. but they can maintain those gains only if they continue to work hard to increase productivity and to ensure that they stay competitive as our currency regains strength. concluding thoughts to conclude, it is almost impossible to overemphasize the importance of rising productivity as the fundamental long - term factor contributing to healthy economic performance and prosperity. over time, gains in productivity are the basis for growing incomes and rising standards of living. compared with the strong performance of the 1950s and 1960s, canada ’ s productivity record since the early 1970s has been rather disappointing. even though the level of our productivity has been rising, we have not made any headway in bringing it closer to that of the united states. recent developments in canada, however, offer some promise of improvement. productivity growth has picked up in the past couple of years in response to the cyclical recovery and the structural changes in our economy. and investment in machinery, equipment, and technology has increased sharply in the past three years, much the same way as it did in the united states some years earlier. but there is no room for complacency. increases in productivity do not just happen. these days, good productivity performance seems to be related to changing technology - an openness to adopting it and a flexibility in adapting to

there was also a moderate increase in public - sector employment. the pick - up in enterprise - surveyed employment was, however, not sustained in the last quarter of 2004 and the first quarter of 2005. over the year to march 2005 enterprise - surveyed employment rose, on balance, by 111 000. the strongest increases were recorded in the community, social and personal services and trade sectors, while employment in gold mining, finance and manufacturing shrank over this one - year period. whereas the enterprise survey measures formal employment in the main non - agricultural sectors of the economy, results from household surveys measures all employment. household survey data indicate that total employment in south africa expanded by some 500 000 jobs over the year to march 2005, but roughly half of this increase was in the informal, domestic service and agricultural sectors. 1 / 5 returning to the narrower data based on the enterprise surveys, it is estimated that labour productivity rose by 2, 6 per cent in the year to the first quarter of 2005. workers engaged in more strike action in the recent past : man - days lost to industrial action increased more than three - fold from the first half of 2004 to the first half of 2005. nevertheless, nominal remuneration per worker rose by 8, 7 per cent in the year to march 2005, noticeably slower than previously. allowing for productivity changes, unit labour cost increased by 5, 9 per cent in the year to march 2005, i. e. 1, 3 percentage points lower than the average rate of increase in 2004. wage settlements averaged 6 per cent in the first half of 2005. these wage settlements and remuneration increases are modest compared to the high nominal increases recorded in the 1970s and 1980s. however, those distant increases were eroded by equally high inflation. after allowing for fiscal drag they did little if anything to improve the average worker's real disposable income. currently inflation is much lower, and as a consequence there is far less money illusion and inflationary distortion which misdirect economic decisions. in july 2005 cpix - inflation amounted to 4, 2 per cent, registering its 23rd successive month within the inflation target range of 3 to 6 per cent. although one cannot deny that it has been a difficult journey to low inflation, the benefits are apparent : more certainty regarding the future purchasing power of the money in our pockets, better planning, especially of cash - flows for those households and businesses using credit and accordingly having to make interest payments. the cash - flow improvement follows because sustained low