Once our economy starts expanding at rates exceeding the growth of potential output later this year, the considerable amount of slack that has built up over the past several months will begin to be absorbed. Still, it could be late 2003 before the actual level of output in the Canadian economy will again reach its potential level.
This implies that core inflation will probably average just under 1 ½ per cent in the second half of 2002. Total CPI inflation is expected to stay below the core rate until late 2002, if energy prices remain near their current levels. Given the profile for output growth, the Bank expects inflation to move back up to 2 per cent in approximately two years.