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Things have changed somewhat since then. While global economic growth is expected to be a little higher than anticipated last spring, a weaker near-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth.

In our latest Monetary Policy Report, which we released this morning, we judge that the Canadian economy is currently operating just above capacity. While global economic growth is expected to be a little higher than previously anticipated, a weaker near-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth.

The Canadian economy is judged to be operating just above its production capacity. While global economic growth is expected to be a little higher than previously anticipated, a weaker near-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth.

Overall, the Bank's outlook for growth and inflation in Canada is largely unchanged from that in its April Monetary Policy Report (MPR). Growth in the first half of 2006 appears to have been a little stronger than projected, and the Canadian dollar has traded in a higher range than was envisaged in the April MPR.

The Bank of Canada Act calls on us to "mitigate … fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada." Over time, it has become clear that the best way for us to fulfill this mandate is to keep inflation low, stable, and predictable.

Total and core inflation were projected to average close to 2 per cent, beginning in the second half of this year. This projection assumed oil prices at roughly US$64 per barrel, a level then indicated by futures prices. Our projection also assumed stable commodity prices, government spending that was growing roughly in line with revenues, and a Canadian dollar continuing to trade in a range of 85 to 87 cents U.S.

The Canadian economy continues to grow at a solid pace, supported by robust global growth, firm commodity prices, and strong domestic demand. At the same time, global competition and the past appreciation of the Canadian dollar continue to pose challenges for a number of sectors.

The Canadian and world economies are evolving essentially in line with the Bank's expectations, and the outlook for growth and inflation in Canada is similar to that in the October MPR. Canada's economy continues to adjust to global developments and to the associated changes in relative prices.

When Paul and I appeared before this Committee last April, we said that the economy appeared to be operating slightly below its production capacity, and that we expected it to move back to full capacity in the second half of 2006. In our October Monetary Policy Report, which we published last Thursday, we said that economic growth in the first half of the year was somewhat stronger than we had previously expected. Indeed, the global and Canadian economies have continued to grow at a solid pace, and our economy now appears to be operating at full production capacity.

Past and recent movements in energy prices and in the exchange rate for the Canadian dollar, along with competitive pressures from China and other newly industrialized economies, are giving rise to significant ongoing adjustments in the Canadian economy. Given these adjustments and the slow growth of productivity in recent years, the Bank has slightly reduced its estimate of potential output growth for 2005 and 2006.