Together, these factors imply that the small amount of excess demand now in the economy will be eliminated by mid-2007. Core inflation is expected to remain a bit above 2 per cent in the coming months but return to the 2 per cent target by the middle of 2007 and remain there through to the end of 2008.
Lower energy prices have led to a downward revision of the near-term projection for total CPI inflation. Total inflation (which includes the temporary impact of the GST reduction) will likely average about 1 1/2 per cent through the second quarter of 2007 before returning to the 2 per cent target and remaining there through to the end of 2008.