Monetary policy efforts in Canada have successfully reduced inflation, bringing it down to around 2%. This level is expected to stay within the Bank of Canada's target range of 1% to 3%. The decline in inflation is attributed to lower energy prices and reduced underlying inflationary pressures. However, the distribution of inflation rates across various components remains broader than usual.
The Bank of Canada anticipates that inflation will remain close to the 2% target over the projection horizon. Core inflation is expected to decrease gradually. The bank acknowledges both potential increases and decreases in inflation as risks and expresses equal concern for deviations from the target.
Canada's economy has generally followed expectations. Growth was slightly stronger than anticipated in the second quarter but appears weaker in the third quarter. Gross domestic product per person continues to fall, with rising energy exports and slowing growth in business investment and government spending.
The economy remains in excess supply, with a softened labor market. Unemployment has increased, particularly among newcomers and youth, while wage growth remains high compared to productivity levels.
Economic growth in Canada is projected to gradually increase, averaging 2¼% over 2025 and 2026. Consumer spending and business investment are expected to improve due to decreasing interest rates. This forecast accounts for slower population growth balanced by rising consumption per person. Export demand is also expected to remain strong.
Globally, economic growth is predicted at about 3% during the projection period. In the United States, GDP growth is robust but may slow down. The euro area's growth remains subdued but should rise gradually. Inflation in advanced economies is likely to be near central bank targets. China's economic activity has slowed due to weak domestic demand amid a property crisis; however, new stimulus measures aim to prevent further weakening.
China's sluggish growth has impacted global oil demand, leading to decreased oil prices which remain volatile due to supply concerns and Middle Eastern conflicts.
The Monetary Policy Report comes from the Governing Council of the Bank of Canada: Tiff Macklem, Carolyn Rogers, Toni Gravelle, Sharon Kozicki, Nicolas Vincent, and Rhys Mendes.