Inflation could reach 3.5% by end of the year
Macklem said the Canadian economy has shown signs of resilience, but uncertainty surrounding U.S. tariffs and the war in the Middle East has clouded the outlook.
He said the bank continues to be “mindful” of that uncertainty in its decision-making.
Canada’s economy grew by 3.3 per cent in the second quarter, and the central bank estimates growth of around two per cent in the third quarter, Macklem said. He also said there’s been solid consumer spending, stronger exports and a rebound in business investment.
The unemployment rate has also held relatively steady at around 6.5 per cent for several months, although Macklem said broader economic indicators suggest there is still excess capacity in the economy.
“Despite ongoing weakness in sectors affected by U.S. tariffs, exports overall have strengthened, bolstered by robust U.S. demand, higher energy production, and increasing signs that businesses are adapting to a changing trade environment,” he said.
The bank expects growth to slow in the final months of 2026 as new U.S. tariffs weigh on economic activity, but could pick up again next year, the governor said.
It projected annual economic growth of one per cent in 2026, followed by two per cent in both 2027 and 2028.
But it now expects inflation to reach roughly 3.5 per cent by the end of this year and remain at or above three per cent for much of 2027, before returning close to its two per cent target by mid-2028.
