Canada bank adopts new forecasting model

The Bank of Canada is introducing a new forecasting model, called Prima, to help policymakers better understand inflation pressures and make more accurate interest rate decisions. Governor Tiff Macklem unveiled the model in a speech to the Halifax Partnership, stating it will improve the bank’s ability to consider alternative economic scenarios.

Governor Macklem said to the press that while no forecasting tool can address every issue, Prima is more appropriate for an economy experiencing frequent supply disruptions and heightened global links. The central bank plans to employ the model to examine previous events and project future conditions.

The introduction of Prima comes as the bank prepares for its October 28 interest rate announcement and Monetary Policy Report. Macklem said the model will help policymakers separate temporary inflation pressures from those that could prove more persistent.

Growth could be roughly halved in the fourth quarter, to below 1 percent, if the latest United States tariffs remain in place, Macklem said. The tariffs hit nearly $28 billion 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, 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.

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. Macklem said when asked about security issues with AI that it’s “still early days,” and the bank wants to use it responsibly with human control.

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. 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. Macklem said the bank will use Prima to review past episodes and forecast going forward, and that it will help policymakers make more accurate interest rate decisions.

Earlier in September 2026, the Governing Council kept the policy interest rate steady, following a 2.25 % level maintained in July. Macklem stated that the Bank prefers not to increase rates and curb growth when inflationary forces are under control, yet it also does not wish to lag behind if price pressures become more entrenched.