The Bank of Canada says food inflation is likely to remain high through the second half of the year as the war in Iran pushes the cost of fuel and farming higher.
In its monetary policy report, the central bank says higher energy prices will continue to weigh on the cost of fertilizer, which is highly dependent on natural gas, as well as other agricultural input costs.
Overall, the central bank is forecasting inflation will slow to 2.5 percent over the second half of 2026, after hitting 3.2 percent in May.
The central bank says its forecast for inflation is highly dependent on developments in the Middle East, and although oil prices have come down from their recent peak in April, they remain volatile as hostilities between the U.S. and Iran picked up again last weekend.
It says war-related cost pressures will continue to pass through to prices for food and consumer goods.
Statistics Canada reported food inflation in May rose 4.3 percent year-over-year, outpacing headline inflation for the 16th consecutive month.
The Bank of Canada held its benchmark interest rate steady at 2.25 percent on Wednesday for the sixth consecutive time and says it expects the economy to rebound after a rough start to the year.
