grow by 2. 2 per cent in 2012. going forward, we expect growth of 2. 3 per cent in 2013 and 2. 4 per cent in 2014. • core inflation has been lower than expected in recent months. this reflects somewhat softer prices across a wide range of goods and services. core inflation is expected to increase gradually over coming quarters, reaching 2 per cent by the middle of 2013 as the economy gradually absorbs the current small degree of slack, bis central bankers ’ speeches the growth of labour compensation remains moderate and inflation expectations stay well - anchored. • total cpi inflation has fallen noticeably below the 2 per cent target, as expected. it is projected to return to target by the end of 2013, somewhat later than previously anticipated. • the inflation outlook in canada is subject to significant risks. the bank ’ s projection assumes that authorities in europe are able to contain the ongoing crisis, and that the u. s. fiscal cliff will be avoided. – the three main upside risks relate to the possibility of higher global inflationary pressures, stronger canadian exports and renewed momentum in canadian residential investment. – the three main downside risks relate to the european crisis, weaker demand for canadian exports and the possibility that growth in canadian household spending could be weaker. • overall, the bank judges that the risks to canada ’ s inflation outlook are roughly balanced over the projection period. • reflecting all of these factors, the bank yesterday maintained the target for the overnight rate at 1 per cent. over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. the timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector. with that, tiff and i would be pleased to take your questions. bis central bankers ’ speeches

have left a ‘ hole ’ in activity. rather, the combined effect of low interest rates and preference shifts is continuing to support demand. over time, though, that additional surge in building approvals from homebuilder and other subsidies will have been worked through and will no longer be a support for the level of dwelling construction. but not yet, because – as i'll explain – the construction industry appears to be at capacity. construction at capacity despite the surge in demand and building approvals, the data on housing completions have not yet picked up in the same way ( graph 7 ). this is why current and expected growth in the housing stock is around the same rate as in the first decade of the century. the large number of detached approvals have mostly started construction, but there is now an unusually large pipeline of detached homes that are yet to be completed. graph 7 residential pipeline ’ 000 quarterly activity commencements dwellings approved but not yet completed ’ 000 higher density approvals completions detached 2022 2002 sources : abs ; rba all the signs point to the fact that the residential construction industry is at capacity and cannot work down this pipeline any faster. to be clear, this has nothing to do with land availability or governments approving enough homes. the land has been made available and the building project is already approved. the issue is how fast these projects can be completed. we hear from liaison contacts in the construction industry that delays are common. normally, a detached home takes about six months to build. currently, they are telling us that it is averaging around nine months. the divergence in the relationship between dwelling investment and its usual drivers also suggests that construction is at capacity. normally, dwelling investment can be reasonably well explained by factors such as recent building approvals, population growth and interest rates. but lately, actual outcomes have been significantly weaker than those usual relationships would imply ( graph 8 ). graph 8 pipeline model – total new dwelling investment $ b $ b actual model $ b $ b change in backlog, four - quarter rolling sum higher density detached - 5 - 5 sources : abs ; rba some of these delays relate to the availability of materials. the supply chain disruptions around the world have impinged on a range of building materials, especially steel and timber, but also everything from tiles to appliances. around one - fifth of firms are reporting that the availability of materials is a significant constraint on their output ( graph 9 ). this is far higher than reported over the