While the economy appears to be operating with less slack than previously assumed, given the more modest growth profile, it is only anticipated to return to full capacity by the third quarter of 2013.   The dynamics for inflation are similar to those anticipated in October, although its profile is marginally firmer.
Both total and core inflation are expected to moderate in 2012 before reaching 2 per cent by the third quarter of 2013, as excess supply is slowly absorbed, labour compensation grows modestly and inflation expectations remain well-anchored.   Several significant upside and downside risks are present in the inflation outlook for Canada.