Economic uncertainty continues to hang over us, but there is still plenty of reason for optimism.
The trade war with the United States has re-escalated in the last month, with additional tariffs being added by the US. Canada has imposed a series of counter tariffs - multiple tiers of goods, with rates range from 15% to 50%. These counter tariffs cover items from cheese and dairy to paper products, to appliances like refrigerators and freezers. If these counter tariffs continue to be applied for a sustained length of time, we will begin to see upward pressure on inflation as costs are passed on to consumers.
At the same time, the conflict in Iran continues to keep global oil prices well above rates that were forecasted at the start of the year. Oil prices remain above $90 per barrel, and that is continuing to keep inflation higher than originally forecast for the year. The most recent monthly year-over-year data showed 3.0% CPI inflation nationwide for August. Private banks are now forecasting inflation between 2.7-3.0% nationally for 2026, with an expected return to normal in 2027.
However, despite the lingering uncertainty, there are some reasons to be optimistic that the worst is behind us. Canadian real GDP growth came in much higher than expected in Q2, at an annualized rate of 3.3%. And the unemployment rate has declined from the peaks of last summer, returning to rates more aligned with historical norms.
