Inflation in Canada is projected to remain above 3% through much of 2027, materially higher than previously forecast. The Canadian economy entered the second half of 2026 on firmer footing, and the outlook for economic activity has been revised up. Uncertainty remains elevated.

Inflation remains around 3%, pushed up by higher gasoline prices. The Canadian economy gained strength in the second quarter, but renewed trade tensions with the United States will weigh on near-term growth.

Oil prices and refinery margins remain elevated and are assumed to decline gradually. Trade between Canada and the United States remains mostly tariff-free. But the breakdown in negotiations has led to new tariffs and increased uncertainty.

Inflation remains above 3% through much of 2027. It then eases gradually because energy and import cost pressures take time to pass through. Growth is projected to strengthen to 2% in 2027 and 2028.

Reduced oil supply from the Middle East and strains on refining capacity are pushing up inflation globally. Higher energy prices are weighing on economic activity. Global growth remains resilient, boosted by strong AI‑related investment.

The outlook for the Canadian economy has improved somewhat, reflecting data showing stronger-than-expected activity, new incentives for business investment and an upward revision to population. Inflation is revised up because of higher and more persistent energy prices as well as higher non-energy import prices.

The evolution of energy prices and Canada’s trade relationship with the United States remain the two most important risks to the outlook for inflation.

Elevated refinery margins have pushed up fuel prices further than the rise in crude oil prices alone would suggest, adding to cost and price pressures. Margins are expected to decline gradually.

Yields on long-term sovereign bonds have risen sharply since the start of the year, reaching their highest levels in more than a decade across many advanced economies.

Increases in energy prices affect inflation in two stages. First, they quickly push up fuel prices, raising transportation and domestic production costs. Second, those higher costs gradually pass through to the prices of a broad range of goods and services.