Actuarial Notes

Monetary Policy Report: October 2026

By Bank of Canada · 2026

The Bank of Canada's Monetary Policy Report for October 2026, published October 28, 2026: a quarterly report of the Bank's Governing Council presenting its base-case projection for inflation and growth in the Canadian economy and its assessment of risks. This issue projects inflation in Canada to remain above 3% through much of 2027, materially higher than previously forecast, and then to settle around the 2% target by the middle of 2028; growth is projected to average 2% in 2027 and 2028. The Report is a product of the Governing Council: Tiff Macklem, Carolyn Rogers, Toni Gravelle, Marc-André Gosselin, Nicolas Vincent and Michelle Alexopoulos.

Overview

  • Inflation is projected to remain above 3% through much of 2027 — longer than anticipated in the July Report — then gradually decline and settle around the 2% target by the middle of 2028 as cost pressures fade; see Inflation.
  • Higher gasoline and diesel prices combined with increased cost pass-through have pushed up the forecast for inflation; measures of core inflation are still near 2%.
  • The Bank has a new macroeconomic model for projection and policy analysis, Prima, which helped analyze how high energy prices affect economic activity and inflation for this Report.
  • Growth in GDP is expected to slow in the fourth quarter of 2026, partly as a result of trade tensions, then pick up and average 2% in 2027 and 2028.

Current conditions

  • Economic activity
    • Activity strengthened heading into the summer
    • Growth is expected to slow as new tariffs weigh on demand
  • Capacity pressures
    • Employment is unchanged and job seekers face difficulties
    • Other indicators point to some remaining excess capacity
  • Inflation
    • High inflation is limited to a few components so far
    • Cost pressures are building
    • Cost pass-through is expected to increase
    • Near-term inflation expectations have risen
  • Commodities
    • Energy prices are expected to stay higher for longer
    • Non-energy commodities prices are mixed
  • Financial conditions

Tariff and other assumptions

  • Tariff assumptions — tariffs and related trade measures in place or officially announced as at October 22, 2026 (Table 1: the average US tariff rate on Canada, 7.5%; the Canadian tariff rate on the United States, 3.9%)
  • Price assumptions for oil and refined products — oil prices in line with the futures curve as at October 15, 2026; Brent assumed to average about US100 in the fourth quarter of 2026 and settle around US75 by the end of 2028
  • Other assumptions — the Canadian dollar at an average of 71 cents US; the nominal neutral interest rate at the midpoint of its estimated range of 2.25% to 3.25%

Outlook

  • Economic outlook
    • Consumption growth is steady
    • Residential investment remains weak
    • Business investment accelerates
    • Government spending supports growth
    • Export growth is modest
    • Import growth slows
  • Inflation outlook
    • Cost pressures contribute to inflation
    • Elevated costs impact major CPI components differently

Global economy

  • United States
    • Economic activity remains strong
    • Inflation is expected to stay high in 2026
  • Euro area
  • China

Projections

  • Changes to the projection
    • Canadian outlook
    • Global outlook
  • Table 2: Contributions to average annual real GDP growth
  • Table 3: Summary of the quarterly projection for Canada — CPI inflation (year-over-year) of 3.4% in 2026Q4, 2.6% in 2027Q4 and 2.1% in 2028Q4
  • Table 4: Projection for global economic growth

Risks

  • 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.
  • Other upside risks to inflation
  • Other downside risks to inflation

In focus: Refinery margins and the persistence of energy inflation

  • Damage to refineries has pushed refinery margins higher
  • Higher margins affect inflation through several channels
  • Refinery margins will likely decline gradually

In focus: Factors behind the rise in long-term sovereign bond yields

  • 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.
  • The drivers of higher yields differ across countries
  • Markets expect higher policy interest rates
  • Term premiums are rising for a variety of reasons

In focus: Using Prima to trace how an energy shock affects inflation

  • Prima accounts for the direct effect on prices
  • Prima traces how costs move through the production network
  • Prima shows how expected costs affect inflation today
  • Prima accounts for demand and trade channels
  • Prima offers a richer analysis of inflation dynamics

Related readings

  • Bank of Canada Selected Benchmark Bond Yields — the Bank's daily benchmark yields; the Report's Chart 12 tracks 10-year government bond yields in Canada

Sources