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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 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.

Canada's experience is interesting and potentially insightful for two important reasons. First, Canada has more experience with a flexible exchange rate than almost any other country.

Every year, the Canadian Press surveys news directors and editors to select the top business story of the year. In 2004, they picked the rise of the Canadian dollar. That was not a surprising choice.

In the Update, the Bank described three major developments affecting the Canadian economy: protracted weakness in the U.S. economy, ongoing turbulence in global financial markets, and sharp increases in certain commodity prices, particularly energy.

This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range.

The global economy has continued to grow at a robust pace since the July Monetary Policy Report Update.

The global economic outlook has been clouded by a high degree of uncertainty, accentuated most recently by the war in Iraq.

In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

The Canadian economy continues to adjust to developments in the global economy.