Monetary Policy Report July 2026

Tariff and other assumptions

Trade within North America remains mostly free of tariffs, but some industries have been heavily affected by sector-specific measures. Oil prices are assumed to decline.

Outlook

Economic growth is expected to pick up over the projection horizon, rising above potential output growth. Inflation is elevated in the near term before returning to target as cost pressures fade and excess capacity is absorbed.

Global economy

The war in the Middle East has pushed up inflation around the world and is weighing on global economic activity. But oil prices have fallen from their peak, and inflation is expected to ease. Investment in AI is boosting global growth.

Projections

The outlook for Canadian growth is broadly unchanged. After a weaker-than-expected start to 2026, GDP growth is projected to be slightly stronger in 2027 and 2028. Although near-term inflation has been a bit higher than anticipated, the outlook for inflation is little changed.

Risks

The evolution of Canada’s trade relationship with the United States and the war in the Middle East remain the two most important risks to the outlook for inflation.

In focus

War‑related supply disruptions are passing through to consumer prices

The conflict in the Middle East has generated both direct and indirect cost pressures that continue to feed through supply chains. These cost pressures are material for the inflation outlook.

The
Monetary Policy Report is a product of the Governing Council of the Bank of Canada: Tiff Macklem, Carolyn Rogers, Toni Gravelle, Sharon Kozicki, Marc-André Gosselin, Nicolas Vincent and Michelle Alexopoulos.

Learn about Canada’s inflation-control strategy, the objective of Canada’s monetary policy and the main instruments used to implement it.

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