some downward momentum. but with gasoline prices rising, cpi inflation is likely to remain around 3 % in the coming months. it is then expected to ease below 2a½ % in the second half of this year and reach the 2 % target in 2025. as always, there are risks around our forecast. inflation could be higher if global tensions escalate and this boosts energy prices and further disrupts international shipping. house prices in canada could rise faster than expected. and wage growth could remain high relative to productivity. on the downside, economic activity globally and in canada could be weaker than expected, cooling demand and inflation too much. we don't want to leave monetary policy this restrictive longer than we need to. but if we lower our policy interest rate too early or cut too fast, we could jeopardize the progress we've made bringing inflation down. overall, the data since january have increased our confidence that inflation will continue to come down gradually even as economic activity strengthens. our key indicators of inflation have all moved in the right direction and recent data point to a pickup in economic growth. i realize that what most canadians want to know is when we will lower our policy interest rate. what do we need to see to be convinced it's time to cut? the short answer is we are getting closer. we are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained. in the months ahead, we will be closely watching the evolution of core inflation. we remain focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour as indicators of where inflation is headed. to conclude, we've come a long way in the fight against inflation, and recent progress is encouraging. we want to see this progress sustained. with that summary, the senior deputy governor and i would be pleased to take your questions. 2 / 2 bis - central bankers'speeches

trade can affect labour productivity through two main " channels " : the exchange rate and the reallocation of resources across sectors. the currency appreciation associated with an improvement in the terms of trade lowers the relative price of imported physical capital, particularly machinery and equipment, and encourages the substitution of capital for labour, which should contribute to higher labour productivity over time, other things being equal. while the effect of the reallocation of resources on real income is always positive, its effect on aggregate labour productivity is less clear. for one thing, the rise in commodity prices can be expected to lower productivity in the primary sector, as higher - cost - that is, less - productive - activities become more profitable. on the other hand, the reallocation of capital and labour away from the production of manufactured goods toward the production of commodities should raise overall labour productivity, since labour productivity levels are higher in the more capital - intensive primary sector. as for the shift from tradables to non - tradables, no generalization is possible, since the non - tradable, services sector is very broad and very diverse, with some industries ( like finance and wholesale trade ) showing high productivity levels and others ( like retail trade ) showing much lower productivity levels. at any rate, these are long - run effects. in the short run, the adjustment process can be expected to exert a transitory drag on productivity growth. for instance, workers with skills tied to a particular industry may require retraining in order to become fully functional in areas of the economy that are expanding. once in new jobs, it may take them some time to develop the firm - specific skills often associated with productivity gains. furthermore, investment in new machinery and equipment may involve new technology, which may necessitate retraining or reorganization of the workplace before the full productivity gains materialize. 8 now, to the extent that a terms - of - trade shock affects productivity growth, there will also be an effect on the growth of potential output. if i were to generalize about the likely effects of the current terms - oftrade shock on potential output through productivity, i would say that we would expect to see an increase in the long run, but a possible dampening in the short run, owing to transitional dislocation costs. the gain over time would come primarily from the " capital deepening " that results from changes in the relative costs of labour and capital and from increased exploration in the primary sector. while closed mines