Macklem wants a sharper read on which inflation pressures last and which fade
A new forecasting model called Prima will serve as the Bank of Canada's primary forecasting tool for the interest rate announcement and Monetary Policy Report scheduled for October 28.
Governor Tiff Macklem unveiled the model on Monday, in a speech to the Halifax Partnership in Halifax, saying it will help policymakers separate temporary inflation pressures from those that could prove more persistent and will improve the bank's ability to consider alternative economic scenarios.
Macklem told reporters at a press conference after the speech, in comments reported by the Financial Post, that no model solves every problem, but this one is better suited to a world with more supply shocks and greater interconnection.
He said the bank will use it to review past episodes and to forecast going forward.
Growth could be roughly halved in the fourth quarter, to below 1 percent, if the latest United States tariffs remain in place, Macklem said in the speech.
The Hub reported that the measures hit nearly $28bn of Canadian goods and included 50 percent tariffs on a range of products after trade talks between Ottawa and Washington collapsed.
Annual inflation sits at 3 percent, above the bank's 2 percent target, Reuters reported, and Macklem said it could edge up in the coming months if oil prices stay near US$100 a barrel.
Recent gasoline prices have been more consistent with an oil price almost US$40 higher than where it has been, he said, citing damage to global refining capacity.
Governing Council left the policy rate unchanged earlier in September 2026, after holding the rate at 2.25 percent in July, when Wealth Professional reported that inflation had risen above target on energy costs.
In September 2025, Macklem warned that tariffs were putting growth on a permanently lower path.
"We don't want to raise our policy rate and restrain growth if inflationary pressures are contained," Macklem said in the Halifax speech. "But nor do we want to be too slow to respond if inflationary pressures are becoming more persistent."
The Bank of Canada uses artificial intelligence to forecast inflation and economic activity, track sentiment in key sectors, clean and verify data, and improve efficiency, Macklem told an AI conference in Toronto in 2024.
Its computer scientists use AI to accelerate coding, and the bank runs an internal large language model for language-specific tasks such as writing, translating and summarizing, according to the Financial Post.
Macklem said Monday when asked about security issues with AI that it's "still early days," and the bank wants to use it responsibly with human control, the Financial Post reported.
He said the technology "wasn't great" when the bank first started using it but has since improved.
Statistics Canada data for the second quarter of 2026 showed 19.2 percent of Canadian businesses had used AI to produce goods or deliver services in the previous 12 months, roughly triple the share in the second quarter of 2024.
Information and cultural industries, finance and insurance, and professional, scientific and technical services were the most likely users.
In the bank's first-quarter Canadian Survey on Consumer Expectations, more than 30 percent of respondents said they use AI to generate and edit content at work, almost 25 percent said they use it to analyze data, code or conduct research, and a little more than 20 percent said they use it to automate work.
Non-energy exports rose 14.5 percent in the second quarter of 2026, their highest level since early 2025, and business investment rose at an annualized rate of 8.8 percent, Macklem said.
Canada's economy grew at an annualized 3.3 percent in the second quarter and the bank had forecast third-quarter growth of 1.5 percent in July 2026, before the latest tariffs were announced.
