growth across all canadian regions. canada is not the only economy that has coped better with recent shocks. to varying degrees, other countries have as well - which partly explains why world economic growth has held up better this time around. clearly, many national economies have been able to respond more flexibly than in the past to unexpected developments. and this has helped to mitigate the impact of shocks, advance the adjustment, and support continued strong economic performance. this increased flexibility has been the product of economic policies and structural reforms that many countries, including canada, have undertaken over the years to strengthen their economies and make them more resilient to shocks. but this does not mean that we have nothing to worry about as we look ahead. we live in an era of rapid change, and we operate in a global environment that is constantly shifting. uncertainty, risks, and shocks are a constant feature of the economic landscape. for canada, this is particularly relevant given how open our economy is to international trade and capital flows. at the bank of canada, we believe that world economic prospects remain favourable as we look out over the medium term. but while this reflects our central expectation of how the world will unfold, there are important upside and downside risks around this scenario. on the downside, persistent global imbalances immediately come to mind, as does the lack of success in the doha round of trade talks. these risks could result in significantly slower global economic growth. at the same time, we cannot rule out the possibility of stronger growth, especially in asia. of course, we know that events can turn out very differently from our expectations today. so we must plan accordingly. in terms of potential risks and sudden developments, the best approach is to constantly ask ourselves what steps we can take to make our economy and domestic markets more flexible and thus better able to adapt. and we need to recognize that the pursuit of such an approach is a shared responsibility among firms, workers, and policy - makers. firms and their workers need to be able to respond quickly to technological advances and to various shocks that require significant changes in the way they conduct business, the type of goods and services they produce, and the markets they choose to develop. a well - functioning market - based economy and clear relative price signals are critical in this context. at the same time, policy - makers need to be wary of barriers to adjustment, such as labour regulations that inhibit the movement of workers from one type of job, or from one sector

##ing and larger - than - normal price increases remain broad - based across the goods and services canadians buy regularly. just as it took longer to see clearer evidence that higher interest rates were moderating demand in the economy, it may now be taking longer for this to translate into lower inflationary pressures. we know it takes time for interest rate increases to work their way through the economy and relieve price pressures. the other possibility, of course, is that monetary policy is not yet restrictive enough to restore price stability. and unfortunately, the longer we wait, the harder it ’ s likely to be to reduce inflation. in trying to balance the risks of under - and over - tightening, governing council decided yesterday to keep the policy rate at 5 % and agreed there may be a need to raise the policy rate further if inflationary pressures persist. going forward, we will be looking for further evidence that price pressures are easing. to assess the momentum in inflation, we use a broad range of indicators. each month, inflation data are buffeted by many factors, some temporary, others more lasting. given that monetary policy works with a lag, we need to try to see where inflation is going. so let me now dig into the data and unpack what we are seeing and what we are looking for. unpacking inflation we ’ ve been saying for some time that inflation would be close to 3 % this summer. it fell to 2. 8 % in june before moving up to 3. 3 % in july, so we are about where we expected ( chart 1 ). chart 1 : year - over - year inflation has declined % jan - 2020 jul - 2020 jan - 2021 cpi - median source : statistics canada last observation : july 2023 jul - 2021 jan - 2022 cpi - trim jul - 2022 jan - 2023 total cpi - 2 jul - 2023 - 3the biggest contribution to the slowing in inflation since the peak last year has been from energy, which accounts for two - thirds of the slowdown ( chart 2 ). price increases in consumer durables like furniture and appliances have also slowed as supply disruptions eased and higher borrowing costs reduced demand. chart 2 : prices of gasoline and consumer durables * have contributed to the fall in inflation from the recent peak june 2022 – july 2022 - 1 - 0. 11 percentage points - 0. 15 - 1 - 0. 37 - 2 - 2 - 0. 99 - 3 - 3 - 4 - 4 - 5 -