/ 2 percent. it then accelerated to a rate of about 3 percent during the first half of this decade despite a recession, the fall of the dot - com market, a broad stock market correction, terrorism, and corporate governance scandals. however, in the early part of 2006, productivity growth slowed markedly, and it has increased at less than a 1 percent rate over the past four quarters. the recent deceleration raises the possibility that the trend has slowed significantly. if the trend has slowed, that could have important implications for the conduct of monetary policy. but the deceleration also could reflect, at least in part, cyclical dynamics in response to a slowing economy. indeed, estimates of trend productivity from a variety of outside forecasters, which generally range from 2 percent to 2 - 3 / 4 percent, point to the possibility that much of the recent weakness will prove transitory. of course, the middle of this range would suggest a modest slowdown from the consensus estimate from a year or so ago, which was around 2 - 1 / 2 percent. in any event, the possibility of a slowing in trend productivity is a risk to the outlook that i will continue to monitor. another potential influence on inflation is the degree of pressure on resources. 1 in the labor market, the unemployment rate declined over the course of 2006 from about 5 percent to 4 - 1 / 2 percent, and so far this year it has remained close to that level. reflecting the tightening of the labor market as well as the pressure on top - line inflation from increases in energy prices in recent years, the rate of increase in hourly compensation, although volatile, appears to be moving up. but the markup of prices over unit labor costs is still high by longer - run standards, and the wide margin implies that firms have the capacity to absorb increases in unit labor costs, at least for a while. as for price inflation, over the twelve months ending in april, the consumer price index excluding food and energy was up 2. 3 percent, the same increase as in the preceding twelve months. inflation as measured by the price index for personal consumption expenditures excluding food and energy rose 2. 1 percent over the twelve months ending in march ( the latest available data ). the most recent consensus forecast for total cpi inflation ( on a fourth - quarter to fourth - quarter basis ) is 3. 0 percent in 2007 and 2. 4 percent in 2008. 2 the anticipated moderation in inflation apparently reflects the expectation that the impetus from

not an easy one to make, particularly because we had been very active in the founding of the bretton woods institutions and the global fixed - rate system. canada had struggled to stay within this system during the late 1940s. but by 1950, sharply higher commodity prices and strong capital inflows into our resource sector led to upward pressure on the canadian dollar. in addition, there were speculative short - term capital inflows, which added to the upward pressure on the currency. to maintain the fixed exchange rate, the canadian authorities first intervened on a massive scale. foreign exchange reserves rose by 40 per cent in less than three months, and the money supply grew rapidly at a time when the domestic economy was already operating at capacity. given the desire to both maintain stable domestic prices and to avoid an economic boom that could lead to a bust later on, canadian authorities felt that they had two options. one was to revalue the canadian dollar ; the other was to let the canadian dollar float. the imf strongly favoured a revaluation - but to what level? it was impossible to know exactly what the correct level for the currency should be. so canada chose to float the dollar. we allowed the market to set its own level for the currency, with the intention of re - fixing the canadian dollar at a new level later on. what was surprising was just how quickly the speculative flows eased once we floated our currency. as it turned out, the canadian dollar appreciated by just 5 per cent during the following three months. while the imf was very critical of canada ’ s decision to float, it accepted our action on the condition that this move would be temporary. the imf expected canada to return to the bretton woods system as soon as a new equilibrium rate for the canadian dollar was found. but the flexible exchange rate worked better than almost all observers had expected, and the “ temporary period ” lasted for 12 years. with the exchange rate allowed to float freely, the bank of canada was able to direct monetary policy to the needs of the canadian economy. we were able to deal with the inflationary threat posed by rapid economic growth and strong investment flows. with the appreciation of the canadian dollar and with the end of the speculative flows, inflation came down from more than 10 per cent in 1950 to under 3 per cent by 1952. like most other countries at the time, canada had extensive foreign exchange controls in place when it floated the canadian dollar. but with growing confidence in the functioning of currency markets