of rates that neither stimulates nor weighs on the economy. or we could raise interest rates beyond neutral levels. let me elaborate on those two scenarios. first, what might lead us to pause our policy rate increases as the rate enters our estimated range for neutral of 2 % to 3 %? one reason would be if price increases reversed course. commodity prices could start to decline, especially if the war in ukraine is resolved. another reason is related to the bullwhip effect. spending habits shifted dramatically into goods and out of services at the outset of the pandemic. but now the economy is almost fully open. because of this, spending on goods could decline faster than we expect, just as goods supply and inventories finally expand. faced with excess supply, retailers and manufacturers could put large discounts on goods. this too could reverse observed price increases. another factor that might lead us to pause is that many households have taken on more debt to get into the housing market. at the end of 2021, the household debt - to - income ratio was 186 %, above the pre - pandemic level of 181 %. and rising interest rates are designed to slow the 4 / 5 bis central bankers'speeches economy by making borrowing more expensive. that tends to slow sectors like housing. but this slowing might be amplified this time around because highly indebted households will face high debt - servicing costs and will likely reduce household spending more than they would have otherwise. our base - case scenario includes a slowdown in housing activity. but we could see a larger - than - expected slowdown due to higher indebtedness and unsustainably high housing prices. now let me explore what would cause us to raise the policy rate modestly above neutral levels. global supply chain issues could be more persistent. in addition, we could get a stronger boost in consumer spending as covid - 19 restrictions ease and people spend more of the savings they accumulated during the pandemic than we currently expect. we may also need to raise rates above neutral because parts of the economy may be less sensitive to rate hikes than in the past. that ’ s because, on average, canadians are in better shape financially than they were before the pandemic. for example, the average household has accumulated $ 12, 000 in liquid assets, and canadians have reduced non - mortgage debt balances. 4 in addition, housing activity might be supported by factors that are not directly related to interest rate movements. specifically, we

some to say the canadian dollar no longer follows commodity prices. the main factor has likely been the strength in the us dollar, which has benefitted from safe - haven flows as the ukraine war broke out as well as a sharp rise in us yields, relative to other jurisdictions, over the last few months or so. this brings me back to inflation. it ’ s clear that, due to the war, global and canadian inflation is going to be higher than we expected. supply of commodities has been disrupted while global demand for commodities remains largely intact. and because the currency is not appreciating with this positive commodity price shock as much as it normally would, the prices of imported goods are not declining. such a decline would have helped lower the price of some of the items we buy regularly. instead, overall, consumer price index ( cpi ) inflation hit 6. 7 % in march, its highest level in more than three decades ( chart 4 ). inflation yes, but not stagflation inflation at 30 - year highs naturally leads to comparisons with the stagflation period of the 1970s. those comparisons aren ’ t justified. yes, we ’ ve got inflation at multi - year highs, partly in response to supply - driven oil ( and other commodity ) price shocks like in the 1970s. but inflation is quite a bit lower than in the 1970s. moreover, stagflation is defined as periods of high inflation that occur at the same time as high levels of unemployment and very slow or recessionary growth. given where we are now, we don ’ t see the stagnant part of stagflation — quite the opposite. the canadian economy, across many measures, is running pretty hot. in the second half of 2021, quarter - over - quarter growth in gross domestic product averaged 6 % on an annualized basis. and we expect growth around 5 % in the first half of 2022. the last time we saw that rate of growth was a 12 - month stretch that ended in mid - 2000 — 22 years ago, the last time we raised our policy rate by 50 basis points. another important difference between now and the 1970s is the state of the labour market. unemployment averaged about 8 % from about 1976 to 1982, the height of stagflation. how is it today? well, the labour market is very tight — much stronger than it was then. the unemployment rate is at a record low of 5. 2 % ( chart 5 ). total employment