However, it said food inflation is expected to remain elevated, as a reflection of higher gas, diesel, and fertilizer costs. Goods inflation is expected to rise as “war‑related input costs gradually work their way through supply chains and feed into prices,” the report said, noting that a lower Canadian dollar has also raised import prices.

Iran War Impacts Inflation Projections

Macklem said the Bank’s inflation forecast is “highly dependent on the path for oil and gasoline prices,” and expects oil prices will stay between US$70 and US$75 per barrel throughout 2026. Macklem noted that the longer the Middle East conflict goes on, the higher the risk that higher oil prices will be passed on to consumers in the form of higher prices. While the U.S.-Iran ceasefire agreement initially pushed oil prices lower, tensions have since risen again. Iran has renewed threats to restrict traffic through the Strait of Hormuz, a key global oil shipping route, while the U.S. military has increased its naval presence in the region and maintained that the waterway remains open to international shipping. The MPR said that while tensions have since “escalated,” the Bank’s models still foresee oil prices declining throughout 2026, and hitting around US$75 by January 2027. The report also said the Bank of Canada is monitoring how supply chain bottlenecks, higher transportation costs, longer-term supply shortages due to Middle Eastern infrastructure damage, and the restocking of oil and gas inventories could contribute to Canada’s inflation outlook.

Economic Recovery

Macklem told reporters in his opening statement that after Canada’s economic growth appeared to have stalled in the first part of 2026, the data received since April has increased confidence “that the economy is indeed working its way through this period of global upheaval.” Macklem said Canadian consumers and businesses had adapted to the pressure from U.S. tariffs, which had hit Canada’s automotive, lumber, and steel and aluminum sectors throughout 2025. Macklem said while the Canada-United States-Mexico Agreement (CUSMA) will now be subject to annual reviews after the July 1 deadline passed, “more businesses report they are finding ways to navigate through the uncertainty.” The governor said consumer spending appears to be solid, oil and gas investment has improved due to higher oil prices, housing activity has picked up, and export growth has resumed and is expected to strengthen, “albeit along a lower path.” Macklem’s positive view of Canada’s economy came after he said back in June he did not believe Canada’s economy was in a recession, as Canada’s industries had not seen broad-based declines and the unemployment rate had remained stable.

Lower Canadian Dollar

The July MPR said that with the U.S. dollar having “appreciated broadly” since the April MPR, the value of the Canadian dollar has fallen to around 71 cents compared to the greenback.

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