is commonly referred to as our measure of “ core inflation, ” which excludes eight of the most volatile components of the consumer price index and removes the effects of changes in indirect taxes. but we have several other methods, models and tools, which help us judge the underlying trend of inflation. next year, the bank will renew its inflation - targeting agreement with the government. as we have been saying for months, among the issues we are looking at in this renewal is whether we should continue to highlight one measure of the underlying trend of inflation, and, if so, whether our current measure of core inflation should continue to be the main guide. at the most recent reading, total cpi inflation was 1. 2 per cent, well below our 2 per cent target. this was largely due to the drop in gasoline prices, which we treat as a temporary effect. total cpi inflation would be even lower – quite close to zero – were it not for bis central bankers ’ speeches exchange rate effects and some one - time factors. meanwhile, core inflation was 2. 4 per cent, but it is also being boosted by exchange rate effects and some one - time factors, such as meat and communications prices. that ’ s a lot of moving parts, and the impact of each of these transitory forces has to be estimated ; we can ’ t just measure them. so we have to use a lot of judgment to gauge the combined impact. clearly, these estimates are subject to a fair degree of error. but our current best judgment is that the underlying trend of inflation is somewhere around 1. 6 per cent to 1. 8 per cent. to get the trend moving back toward 2 per cent, it ’ s essential that excess capacity in the economy be used up. with growth set to accelerate over the rest of the year, the underlying trend should eventually converge with total cpi inflation at the 2 per cent target when the economy returns to full capacity. here ’ s the bottom line on our voyage. we ’ re still a ways from home ; we project it will take 18 months or so to get there. that ’ s if growth turns out as we expect and we aren ’ t hit by other storms or cross - currents on the way, whether headwinds or tailwinds. but our best judgment is that we should get home – at full capacity and with inflation sustainably at 2 per cent – around the end of 2016. conclusion let me conclude with a few words about what home will look like when we

going. we don ’ t have a bridge, so the economy can ’ t avoid the choppy waters. however, there are signs that tell us we ’ re headed in the right direction. it ’ s important for the bank to be transparent about the signs we watch, both because financial markets should make their own judgments about what we will do and because our monetary policy works better when canadians understand what we ’ re doing, and why. the long voyage home we begin the story with the great recession of 2008 – 09, which saw canadian exports fall further than in any recession since the second world war. policy - makers everywhere reacted aggressively to the global turmoil. here in canada, governments boosted spending, and the bank of canada cut interest rates in steps until we reached the effective lower bound. these moves, combined with a strong financial system, gave canada one of the best post - crisis experiences among advanced economies. it ’ s fair to say that households did most of the heavy lifting to keep the economy growing, borrowing to buy houses and cars. we also enjoyed good growth in our energy sector with high oil prices. bis central bankers ’ speeches but growth that relies too much on low interest rates and household spending isn ’ t sustainable. we kept looking for signs that a natural sequence was taking over in the economy : recovery in the united states and elsewhere would lead to stronger exports. this would spark increased business confidence, investment and employment. ultimately, we would achieve natural, balanced growth, with exports representing a larger share and inflation sustainably at its 2 per cent target. exports began to recover after the recession but stalled in 2012 and 2013, despite strong u. s. growth. so, at the bank of canada, we did a lot of work to figure out what was going on, looking at how the drivers of exports were evolving, including the competitiveness of various sectors and the loss of productive capacity in the wake of the recession. we looked at 31 categories of canada ’ s non - energy exports and found that about half of them were underperforming relative to what you ’ d expect, given the state of foreign demand and the exchange rate. we further broke those weak categories into about 2, 000 specific goods or services and discovered that about 500 of those had been shrinking since the early 2000s, falling to almost nothing. we were able to show that much of this drop was due to companies in these areas ceasing to operate in canada. so, their productive capacity has been permanently lost