The Bank of Canada (BoC) held its benchmark overnight interest rate steady at 2.25% at its July meeting, the sixth straight decision to leave borrowing costs unchanged.

Inflation rose to 3.2% in May, mostly due to higher energy prices linked to the Middle East conflict, though core inflation, which excludes more volatile items, stayed close to the BoC’s 2% target.

The BoC noted that Canada’s economy is showing early signs of improvement, with growth picking up after a sluggish stretch, though the job market remains soft, with unemployment near 6.5%.

Canada’s central bank expects inflation to ease gradually, returning to around 2% in early 2027, but flagged global trade tensions and the Middle East conflict as key risks ahead.

Overall, holding interest rates steady signals the BoC believes current borrowing costs can support Canada’s economic recovery without reigniting inflation, a cautiously optimistic sign, though improvement is likely to be gradual rather than dramatic in the near term.

The annual inflation rate in the U.S. fell to 3.5% in June from 4.2% in May, which matched economists’ expectations. On a monthly basis, consumer prices declined by 0.4%, which was their first monthly decline since 2020.

The monthly decline was driven by a 5.7% drop in energy costs, with gasoline prices falling 9.7% as oil prices reversed course in June as the U.S. and Iran reached an interim peace deal.

The annual core inflation rate eased to 2.6% from 2.9%, suggesting some underlying price pressures cooled off.

The cooler reading eases pressure on the U.S. Federal Reserve Board to raise interest rates, though the decline leaned heavily on volatile energy prices, making it too soon to call it a lasting trend.

Tensions in the Middle East escalated last week with the U.S. and Iran exchanging attacks, while the U.S. reimposed its blockade of Iranian oil through the Strait of Hormuz. Oil prices moved higher last week amid the reescalation of attacks and uncertainty towards a permanent peace deal.

China’s gross domestic product grew by 4.3% year over year in the second quarter of 2026, which was down from 5.0% in the first quarter of 2026 and its weakest pace of growth since the fourth quarter of 2022.

The result fell short of the 4.5% growth economists expected, signalling a sharper–than–anticipated slowdown in domestic demand.

Retail sales barely grew, and business investment turned negative over the quarter, even as exports remained strong, largely in response to robust demand for artificial intelligence products.

For the first half of the year, China’s economy grew 4.7%, keeping it within Beijing’s official target range, though momentum is clearly fading.

The slowdown in the world’s second-largest economy could weigh on global economic growth and demand for commodities, adding another layer of uncertainty to an already fragile global economic outlook shaped by trade tensions and the conflict in the Middle East.

In its July monthly report, the Organization of the Petroleum Exporting Countries and allies (OPEC+) lowered its 2026 global oil demand growth forecast to increase by 800,000 barrels per day (bpd), down from 1 million bpd projected just last month, citing softer demand outside developed economies.

For 2027, OPEC+ raised its demand growth forecast, suggesting the group expects any slowdown to be temporary.

On the supply side, OPEC+ countries increased production by roughly 3 million bpd in June, bringing daily output to about 36.3 million bpd, even as Saudi Arabia’s own production dipped.

Softer demand forecasts paired with rising supply point to downward pressure on oil prices in the months ahead. However, this could be somewhat offset by fresh tensions in the Middle East, which sent oil prices higher last week.

Cheaper oil could help cool inflation and give central banks more room to manage interest rates, though weaker demand growth also signals the global economy may be losing some momentum.