Monetary Policy Report—July 2026—Canadian economy
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.
Tariff assumptions
The tariff assumptions embedded in the projection remain the same as in the April Report. Although the Canada‑United States‑Mexico Agreement has moved to annual reviews, exemptions for compliant goods are assumed to remain in place, along with existing US tariffs.
The projection is based on tariffs in place or officially agreed on as of July 10, 2026 (Table 1).1
| Before 2025 | October 2025 | January 2026 | April 2026 | July 2026 | |
|---|---|---|---|---|---|
| US tariff rate on Canada | 0.1 | 5.9 | 5.8 | 5.1 | 5.0 |
| Canadian tariff rate on the United States* | 0.0 | 1.0 | 1.2 | 1.5 | 1.5 |
* These tariff rates include the impact of Canadian tariff remissions.
On June 1, the US administration expanded the list of products subject to temporarily reduced tariff rates and introduced new temporary tariffs on specific industrial equipment and machinery products. These changes have little effect overall.
The average US tariff rate on imports from Canada is now estimated to be 5.0%, down slightly from 5.1% in the April Report, while Canada’s average tariff rate on US imports is unchanged at 1.5%.
Other assumptions
The projection is also conditional on several other assumptions.
- Oil prices are assumed to remain in line with the futures curve as of July 9, 2026. The price of Brent oil is assumed to average about US$75 in the third quarter of 2026 and settle around US$70 by the end of 2027, about US$5 lower than assumed in the April Report but US$10 higher than in the January Report. Prices of West Texas Intermediate (WTI) and Western Canadian Select (WCS) are assumed to follow a similar path, stabilizing at US$65 and US$50, respectively, by the end of 2027.
- The spread between the prices of WTI and WCS is US$5 wider than assumed in the April Report. This revision stems partly from increased Venezuelan exports of heavy crude oil to the United States and partly from upward pressures on WTI prices due to declining commercial inventories and strong US crude oil exports.
- The Canadian dollar is assumed to average around 71 cents US over the projection horizon, down 2 cents US from the April Report.
- Potential output growth in Canada is projected to ease to 1.1% in 2026. This reflects slower population growth and the impact of US trade policy. Potential output growth then picks up to 1.3% in 2027 and 1.5% in 2028 as population growth gradually rebounds, the drag on trend productivity from US tariffs eases and investment recovers. The broader adoption of artificial intelligence is also expected to boost productivity.
- The nominal neutral interest rate in Canada is assumed to be at the midpoint of its estimated 2.25% to 3.25% range.
- The outlook embeds additional war‑related cost pressures beyond the direct energy shock (see In focus: War‑related supply disruptions are passing through to consumer prices). Although oil prices have declined from their peak, some cost pressures remain and will continue to pass through to consumer price index inflation over the next few quarters. These include elevated transportation costs and other costs associated with global supply chain pressures. These effects have a peak impact of about 0.4 percentage points on headline inflation in the first quarter of 2027.
- The impact of trade policy uncertainty on gross domestic product is assumed to ease slowly over the projection horizon.
- The projection for Canada incorporates information from the latest federal and provincial budgets and fiscal updates that have been tabled at the time of writing.
Endnotes
- 1. For more details on calculating average tariff rates, see Bank of Canada, “How the average tariff rates are calculated,” Monetary Policy Report (October 2025).[←]