Bank of Canada Governor Tiff Macklem has expressed concerns about the increasing risk of inflation, highlighting rising energy costs and the impact of Canada’s new tariffs on U.S. goods as potential drivers of higher consumer and business prices.
During a press briefing in Ottawa, Macklem emphasized that the recent escalation of the conflict in the Middle East and the resulting surge in oil prices pose significant inflation risks. He noted that prolonged tensions could lead to price increases across various goods and services.
The Bank of Canada’s decision to maintain its benchmark interest rate at 2.25 per cent aligns with expectations, marking the seventh consecutive meeting without a change in the policy rate since it was lowered in October last year. The central bank cited recent economic data supporting a broadening recovery but also highlighted the uncertainties posed by the ongoing war and trade tensions.
Amid the escalating Canada-U.S. trade war, with both countries imposing significant tariffs on each other’s products, Macklem acknowledged the challenges posed by these trade actions. The Canadian government has rolled out additional economic relief measures to support affected workers and businesses, adding to the previously implemented tariff support programs.
Canada’s inflation rate rose to three per cent in July, driven primarily by increases in gasoline and oil prices influenced by global geopolitical tensions. Macklem emphasized the need to achieve the bank’s target inflation rate of two per cent, expressing concern about the current levels.
Looking ahead, economists predict potential rate hikes starting in the fourth quarter of 2026, contingent on economic developments and data leading up to the next meeting. The uncertainties surrounding trade relations and the impact of ongoing conflicts are expected to influence the bank’s future monetary policy decisions.
While the Bank of Canada controls short-term borrowing costs, longer-term rates are influenced by the bond market. Bond yields in Canada have shown some spillover effects from global trends, with the benchmark 10-year Government of Canada bond yield reaching its highest level in over two years. Despite market fluctuations, officials are monitoring for signs of instability and liquidity risks.
A recent poll of economists indicates expectations for the Bank of Canada to maintain its key rate in the upcoming announcements, with the next rate decision scheduled for October 28. The central bank remains vigilant amidst evolving economic conditions and external uncertainties impacting Canada’s monetary policy landscape.