Monetary policy has worked to reduce price pressures in the Canadian economy. Inflation is now around 2% and is expected to remain near the middle of the Bank of Canada’s control range of 1% to 3% over the projection.

Overview

Consumer price index (CPI) inflation has fallen and is now around 2%. The recent decline in inflation reflects both lower energy prices and weaker underlying inflationary pressures. Overall, inflation is near target, but the distribution of inflation rates across CPI components remains wider than usual.

Over the projection horizon, inflation is expected to remain close to the 2% target. Core inflation is forecast to decline gradually. There are both upside and downside risks to the Bank of Canada’s outlook for inflation, and the Bank is equally concerned with inflation rising above the target or falling below it.

The Canadian economy has evolved broadly as anticipated. Relative to the July forecast, growth in the second quarter was slightly stronger than expected, while the third quarter looks weaker. Gross domestic product (GDP) per person continues to decline. Energy exports are rising, and growth in both business investment and government spending is slowing.

The Canadian economy continues to be in excess supply. The labour market has softened, with increases in unemployment concentrated among newcomers and youth. Wage growth remains elevated relative to productivity.

Canada’s economic growth is expected to pick up gradually and average 2¼% over 2025 and 2026. Consumer spending and business investment are anticipated to strengthen, supported by decreases in interest rates. This forecast reflects the net effect of slower increases in population and rising growth in consumption per person. Export demand is also projected to remain strong.

The global economy is expected to grow at around 3% over the projection horizon. GDP growth in the United States is strong, but the pace of activity is anticipated to slow. In the euro area, growth remains subdued but is projected to rise gradually. Inflation in advanced economies is expected to be close to central bank targets. In China, economic activity has slowed because of weak domestic demand amid the ongoing property crisis. New stimulus measures should stem further weakness.

Weak growth in China has weighed on the demand for oil. Global oil prices have decreased and remain volatile amid concerns over supply and demand and the conflict in the Middle East.