economy as a whole is feeling the adverse effects, as tensions increasingly spill over from the financial sector to the real economy and from advanced economies to emerging market economies. in the case of the euro area, the latest survey data confirm that momentum in economic activity has weakened significantly, with sluggish domestic and external demand and tighter financing conditions. looking forward, it will be crucial to lay sound foundations for a recovery. for this to materialise as early as possible, it is of the utmost importance to maintain discipline and a medium - term perspective in macroeconomic policy - making, and to avoid second - round effects. it is equally important that the banking sector takes fully into account the significant support measures adopted by governments to deal with the financial turmoil. these measures should be supporting trust in the financial system and should help to prevent undue constraints in credit supply to companies and households. in combination with the recent broad - based falls in commodity prices, these measures should help to restore confidence. in the view of the governing council, a number of the downside risks to economic activity identified earlier have materialised, particularly those stemming from the financial market tensions. other downside risks continue to relate to disorderly developments due to global imbalances and rising protectionist pressures, as well as to the possibility of renewed increases in commodity prices. with regard to price developments, annual hicp inflation has remained considerably above the level consistent with price stability since last autumn. however, it has been steadily declining since july, falling – according to eurostat ’ s flash estimate – to 3. 2 % in october, from 3. 6 % in september and 3. 8 % in august. the continued high level of inflation is largely due to both the direct and indirect effects of past surges in energy and food prices at the global level. moreover, strong wage growth in the first half of the year, in spite of a weaker growth momentum, combined with a deceleration in labour productivity during the same period, resulted in a significant increase in unit labour cost. looking forward, recent sharp falls in commodity prices, as well as the ongoing weakening in demand, suggest that the annual hicp inflation rate will continue to decline in the coming months and reach a level in line with price stability during the course of 2009. depending, in particular, on the future path of oil and other commodity prices, some even stronger downside movements in hicp inflation cannot be excluded around the middle of next year, particularly due to base effects. these

, including the bank of canada, have a responsibility to promote the stability and soundness of their country's financial system. a market economy, like ours, cannot function well without the support of a strong financial system. sound financial institutions, a robust financial infrastructure, and efficient financial markets are necessary to facilitate transactions and to properly channel savings into investments. for an economy to perform well, individuals and businesses must be confident that money and financial claims can be reliably and efficiently created, held, transferred, and settled. now, if the arrangements that are in place do not work properly, the financial system can turn into a channel through which shocks are amplified as they are transmitted from one part of the system to the next and also beyond national borders. whether such shocks are of an economic nature or whether they originate in the financial system itself, they can end up having an important impact on the economy as a whole. so there are good reasons why countries should ensure that their financial systems work well and that they do not trigger or spread instability domestically and internationally. the bank's contribution to domestic financial stability in canada, the bank shares the responsibility for financial stability at the federal level with three other entities - the office of the superintendent of financial institutions, the canada deposit insurance corporation, and the department of finance. various provincial bodies also play an important role. the bank focuses its attention mainly on macro financial stability issues, leaving the principal responsibility for micro issues to the other entities. the bank's overriding concern is to ensure that the financial system is sound and that it works efficiently. in this context, we provide liquidity to the system, in both ordinary and extraordinary situations. we give policy advice to the federal government on the design and development of the financial system. through our oversight of major clearing and settlement systems, we act to make sure that the failure of a participant does not lead to domino effects and to generalized instability. and we provide banking services to these systems and to their participants. finally, we collaborate with other domestic and international bodies that work on financialstability issues. thanks to the collective efforts of all those charged with the promotion of financial stability in canada, we have a financial system that is efficient and robust. and, as recognized by the international monetary fund ( imf ) in 1999, it complies with all major international standards. but the financial landscape is constantly changing. under pressure from greater global competition, and with the benefit of new information technology, more sophisticated financial products are