( reflecting the increase in our terms of trade and the relative weakness of the u. s. dollar ), and competition from asia have led to flat to declining exports, especially in the manufacturing sector. thus, overall, what we have had in canada is strong domestic demand offsetting a weak traded - goods sector. monetary policy has been calibrated based on judgments about the relative strengths of these competing forces, with an eye firmly fixed on the policy objective of keeping inflation at our 2 per cent target. currently, total cpi inflation in canada is 1. 8 per cent. excluding the one - time effect of the january gst cut, total cpi inflation is 2. 4 per cent, and core inflation ( which excludes the more volatile components ) is 1. 5 per cent. staying on top of all the forces at play is an essential preoccupation of the bank of canada. as we said in our last policy press release a month ago, the correction in the u. s. housing sector, knock - on effects of this correction to other parts of the u. s. economy, and the tightening of credit conditions in global financial markets have led us to conclude that the risks surrounding the canadian economy have shifted to the downside, resulting in our decision to lower our policy interest rate by 50 basis points to 3. 5 per cent. we also said that further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term. with that global and national perspective, i'll now talk about some of the issues, challenges, and opportunities facing the ontario economy. ontario's economy is being confronted by both cyclical and structural economic forces. on the cyclical front, we have the marked slowdown in the u. s. economy. this has had a direct impact on the province's forest products industry – from lumber, to doors, windows, and building materials generally – and on the automotive industry. but these and other industries are feeling the effects of strong structural forces. clearly, competition from emerging - market countries is one of those forces. because of these cyclical and structural forces, demand has turned away from a number of products that ontario has traditionally produced. in other words, relative prices have moved against some key segments of the ontario economy. to draw a comparison to the national situation, one could say that there has been an adverse movement in ontario's terms of

##hell, the united states has been running a very sizable current account deficit for a number of years, while most of the rest of the world – especially asia and oil - exporting countries – has been running current account surpluses. large imbalances such as these are not sustainable over long periods, so the question arises : what needs to be done to effect an orderly resolution? two main adjustments are needed. first, those countries with large surpluses need to rely more on domestic demand as a source of growth, and those with deficits ( mainly the united states ) need to increase their national savings rate. second, there is a need for more exchange rate flexibility. this is particularly the case for china, but also more broadly across southeast asia. china continues to resist exchange rate flexibility, and thus adjustment, through the accumulation of foreign exchange reserves, which now total us $ 1. 5 trillion. i want to quickly add that greater exchange rate flexibility is in china's own best interest. it would greatly enhance their ability to manage their own economy, including dealing with their mounting inflationary pressures. the third major challenge is the integration of china and india into the global economy. not surprisingly, some perceive the growing economic clout of and competition from china and india as a threat, especially as both countries increasingly produce more high - value - added goods and services. but the growth of emerging - market economies represents a tremendous opportunity for canadian businesses. we need to exploit our comparative advantages and see these rapidly expanding markets as places to do business. so, that's a quick look at some of the trends in and the challenges posed by the global economy. let me now turn to the home front and discuss some key economic issues facing canada and ontario, in light of these global developments. canada and ontario in the global economy these global economic trends represent significant and, in a very real way, competing or contrasting, forces shaping developments here at home. strong commodity prices are generating a substantial boost to incomes in canada. in economic jargon, we have had an increase in our terms of trade – the prices of the products we sell internationally are rising faster than the prices of the products we import. the resulting rise in real incomes is providing support for domestic demand in canada, which has been showing up in rising consumption, construction spending, investment in machinery and equipment, and, more broadly, in employment gains. at the same time, the weakness of the u. s. economy, the strength of our dollar