The Bank of Canada raises inflation and growth forecasts, with energy costs becoming a key variable

⑴ The Bank of Canada, in its quarterly monetary policy report, raised its inflation forecast for 2027 from 2.0% in July to 3.1%, citing persistently high energy costs.⑵ The bank expects inflation to fall back to 2.2% in 2028; the inflation rate for 2026 is projected at 2.9%, higher than the July forecast of 2.5%.⑶ In terms of growth, the growth rate for 2026 is expected to be only 1.0%, while for 2027 and 2028 it rebounds to 2.0%, higher than the July forecast of 1.8%.⑷ On an annualized basis, third quarter growth is projected at 2.0%, higher than July’s forecast of 1.5%, while the fourth quarter is set at 0.8%.⑸ The Bank of Canada expects the potential output growth rate in 2026 to slow to just below 1.5%.⑹ The bank assumes the midpoint of Canada's estimated nominal neutral interest rate is between 2.25% and 3.25%.⑺ The Bank of Canada’s monetary policy rate assumes that most exemptions for US-Mexico-Canada Agreement-compliant goods will remain in place.⑻ The bank assumes the average Brent crude oil price in the fourth quarter will be about $100, gradually dropping to around $75 by the end of 2028.