Canada: Oil-driven inflation shifts BoC outlook – TD Securities

TD Securities’ Robert Both updates Canada’s macro outlook as higher Oil prices push WTI above $95 through Q4, lifting headline CPI to an average 2.9% over Q2/Q3. Despite a weaker 2026 GDP growth path and a delayed output gap closure to 2028, the Bank of Canada is still expected to keep its Overnight Rate at 2.25% through 2027.

Higher Oil complicates Bank of Canada path

"Recent changes to our baseline view for crude oil have introduced upside risk to headline inflation, with WTI prices now projected to hold above $95 through Q4."

"CPI had been softer than expected over Mar/Apr (0.5pp over two months), but the new trajectory for oil threatens to walk some of that back."

"We now look for y/y headline CPI to average 2.9% over Q2/Q3, peaking at 3.0% on a monthly basis."

"Separately, the large miss on Q1 GDP leaves 2026 growth on a much softer trajectory (0.7% on average annual basis) even with a return to above-trend growth in Q2."

"Further accumulation of excess supply gives the Bank of Canada more flexibility to look through the oil shock, but as long as near-term growth is forecast to exceed potential output we do not see a need for cuts."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)