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.
Recent economic indicators for Canada support the view that a recovery is starting. Household spending, particularly on interest-sensitive purchases, has been stronger than expected. Exports have lately shown signs of revival. The inventory adjustment is progressing. And with early evidence of a firming U.S. economy, the world prices of non-energy commodities appear to have bottomed out.