Monetary policy is working to reduce price pressures in the Canadian economy. Core inflation is expected to ease gradually, while the path of CPI inflation will be bumpy.

Overview

Consumer price index (CPI) inflation in Canada is moving closer to the 2% target.

Inflation is no longer broad-based, and measures of core inflation have eased significantly. However, some pressures remain, particularly in prices for services.

Progress back to target is expected to be uneven.

See details in the Projections section.

Canadian economy

Economic growth in Canada has picked up but is weak relative to population growth. Consumer spending per person has been declining, and residential investment has been subdued. Strong population growth has added to the supply of workers, and the labour market has cooled significantly.

The ongoing excess supply in the economy is expected to pull inflation down. Other indicators also point to lower inflation going forward. Inflation expectations have generally fallen, and businesses have gone back to their normal ways of setting prices.

Wage growth, however, remains elevated. Inflation in the services most affected by wages is proving persistent. And rent and mortgage interest costs are keeping inflation in shelter prices high.

Find out more in the Current conditions section.

Outlook

Canada’s economy is expected to strengthen in the second half of 2024 and into 2025. Growth in exports is anticipated to pick up. Household spending should strengthen as borrowing costs come down.

Population growth is projected to slow because of new limits on arrivals of temporary residents.

Core inflation is expected to ease to about 2.5% in the second half of 2024 and then continue its gradual decline. CPI inflation is forecast to temporarily fall below core inflation, mostly due to gasoline prices. It is then projected to rise modestly into the first half of 2025 before returning sustainably to 2% later that year.

Take a closer look in the Outlook section.

Global economy

The global economy is expected to grow at around 3% over the projection horizon.

In the United States, economic growth has slowed after a period of surprising strength. Past increases in interest rates are weighing on consumers, and government spending has moderated. The euro area economy, meanwhile, is expanding after stalling in 2023.

Inflation remains above central bank targets in the United States and the euro area. It is expected to gradually ease.

Learn more in the Global economy section.

Risks

There are both upside and downside risks to the Bank’s inflation outlook. Overall, the Bank considers the risks to be balanced.

The main upside risks:

• services price inflation could be more persistent than expected
• global geopolitical tensions and conflicts could worsen

The main downside risks:

• household spending could be weaker than projected
• global economic activity could slow more than expected

See details in the Risks section.