and international trade encouraged investment and supported productivity. technological advancements also lifted global productivity, shrank distances and lowered costs. the entry into the global trade system of vast new labour markets in china and eastern europe pushed down the prices of many traded goods. global supply chains grew rapidly, minimizing costs by linking the global economy through heightened specialization and trade. these supply developments all fostered a period of solid growth, low inflation and low interest rates. but these forces are now shifting. the failure to adequately share the benefits of growth has fuelled populism that is causing countries to turn inward. support for globalization is stalling or even reversing, and productivity growth is trending down. and as the growth in the working - age population slows and businesses find it harder to hire workers, there could be persistent upward pressure on wages. if higher wage costs are not matched by improvements in productivity, the costs of production will increase. almost three years of the pandemic and the invasion of ukraine by russia have also highlighted some of the vulnerabilities of interconnected trade. the pandemic made clear that relying too much on highly specialized supply chains can have downsides. and russia's weaponization of its natural gas supply has underscored the risks of assuming all countries share the same interests in peace and prosperity. rising geopolitical tensions, more broadly, have underscored the fragility of some business relationships. in the future, it seems likely that supply chains will be shorter, more diversified and more resilient. trade will likely narrow to more trusted partners. these changes will increase resilience but at the cost of efficiency. and through this adjustment, production costs could rise, increasing price pressures. over the long term, it seems likely that we won't have the same disinflationary forces that we've had for the past 30 years. these potential developments could make it harder to bring inflation back to the 2 % target and keep it there. but how much harder is very difficult to say. these are fundamental uncertainties we'll need to confront in the years ahead. but by constantly focusing on achieving the 2 % inflation target, our monetary policy framework is well designed to address uncertainty and adapt to new developments. if the inflationary forces going forward are stronger than we expect, we will start to see inflation coming in above our forecasts. and we will adjust our policy settings to achieve the 2 % target. if,

. for example, using a shorter - run concept, carney ( 2013 ) concludes that “ the equilibrium real interest rate [ in the u. k. ] has been, and continues to be, negative. ” shorter - run definitions of neutral are more useful as normative measures of the currently warranted policy rate than as tools for gauging the degree of stimulus in the economy. given the headwinds faced by the canadian economy, shorter - run measures of neutral in canada would currently be well below the 3 to 4 per cent range for longer - run neutral rates. this is reflected in the banks ’ policy stance. see r. mendes, “ the neutral rate of interest in canada, ” discussion paper no. 2014 – 5, bank of canada 2014 ; and m. carney, “ the spirit of the season ” ( speech to the economic club of new york, new york, 9 december 2013 ). for a more detailed explanation, see technical box 2, headwinds, tailwinds and the policy rate, monetary policy report, july 2011. bis central bankers ’ speeches as i said earlier, proponents of the secular stagnation interpretation of events believe that the factors restraining demand are a larger and more permanent feature of the global economic landscape. if they turn out to be right, the real neutral rate could actually be negative and monetary policy could be a lot tighter than we think it is. while we cannot completely discount this possibility, we believe that in canada the real neutral rate is still positive and that, globally, monetary conditions are generally stimulative, although they vary across countries. 11 challenges for monetary policy our estimates of potential and the neutral rate, and the models in which they are used, are critical inputs to our policy deliberations. they are not the end of the story, though. we also ask ourselves how various sources of uncertainty should influence these deliberations. and we clearly articulate the main upside and downside risks to our base - case outlook for inflation. that is what we mean when we talk about our risk - management approach to monetary policy. as the economy recovers and we get closer to full capacity, judgments about potential output and the remaining slack in the economy become more important. so do judgments about the neutral rate and the amount of monetary policy stimulus. inflation could surprise on the upside if there were less slack and more monetary stimulus than we think. we watch developments in inflation carefully to distinguish between temporary and lasting effects. fortunately