that might not seem like much, it was in the opposite direction of what we expected, and the details behind the headline number were concerning. in particular, three - month - 3measures of core inflation remain elevated and seem to have lost their downward momentum. and goods inflation surprised us by accelerating in april, reversing course after months of deceleration. we still expect headline inflation to have eased in may and to be near 3 % later this summer, but this is largely due to lower energy prices and what we call base - year effects — the comparison of current price gains with the very large gains a year ago. to sum up, when we looked at the recent dynamics in core inflation combined with ongoing excess demand, we agreed the likelihood that total inflation could get stuck well above the 2 % target had increased. based on this accumulated evidence, we decided to raise the policy rate to slow demand and restore price stability. we ’ ll have more to say about all of this in our july forecast. we know this tightening cycle has not been easy for many canadians. but the alternative — not controlling inflation — would be far worse, particularly for people living on low or fixed incomes. when inflation is stable around the 2 % target, it removes the anxiety created by large swings in the cost of living. price stability means households and businesses can plan, budget and invest with confidence and allows our economy to work better. that is why the bank remains focused on taking the steps needed to restore inflation to 2 %. breaking down interest rate movements that wraps up my discussion of yesterday ’ s decision, which was very much a look at what we are considering in the near term. now let ’ s consider the forces influencing interest rates in the long term. to start, let ’ s look at the 25 years leading up to the pandemic, a period with a clear downward trend in long - term interest rates in canada ( chart 1 ). this downward path is unmistakable, whether we ’ re talking about mortgage rates, business loan rates or yields on government bonds. - 4chart 1 : long - term nominal interest rates fell steadily in canada over the 25 years before pandemic % quarterly data, 1995q1 to 2019q4 conventional mortgage rate business loan rate sources : canada mortgage and housing corporation via haver analytics and bank of canada 10 - year bond yield last observation : 2019q4 to better understand the forces that drove that trend, it will be helpful to distinguish between three different

, which is why chart 2 shows such similar trends across countries. if we want to understand these trends, we need to consider the structural forces that could have led to upward pressure on global saving or downward pressure on global investment. figure 1 illustrates these forces in action, showing how more desire to save from households should lead to a lower neutral rate ( middle panel ) and how the neutral rate would fall even further if firms ’ investment opportunities were simultaneously shrinking ( bottom panel ). while i won ’ t be able to touch on all the potential forces in my remarks today, 2 i want to flag four that are widely viewed as being key drivers in recent decades — three on the saving side, and one on the investment side. other forces emphasized in the literature include changes in fiscal policy, the demand and supply of safe assets and the relative price of investment. among many others, see l. rachel and l. h. summers, “ on secular stagnation in the industrialized world, ” brookings papers on economic activity 50, no. 1 ( 2019 ) : 1 – 76 ; and l. rachel and t. d. smith, “ are low interest rates here to stay? ” international journal of central banking 13, no. 3 ( 2017 ) : 1 – 42. in theoretical models, the real neutral rate is also commonly linked with trend growth, though empirical support for this link is mixed. see, for example, k. g. lunsford and k. d. west, “ some evidence on secular drivers of us safe real rates, ” american economic journal : macroeconomics 11, no. 4 ( 2019 ) : 113 – 139. - 7figure 1 : saving and investment determinants of the real neutral rate real neutral rate ( r ) s ( r ) initial equilibrium i ( r ) saving ( s ), investment ( i ) real neutral rate ( r ) s ( r ) new equilibrium with upward pressure on saving i ( r ) saving ( s ), investment ( i ) real neutral rate ( r ) s ( r ) new equilibrium with upward pressure on saving and downward pressure on investment i ( r ) saving ( s ), investment ( i ) - 8demographics and aging the first force has to do with demographics. over the past two decades, both here in canada and in other countries, the baby boomers have been nearing the end of their working years. this is important because people tend to save more as they approach retirement