Oil
Bank of Canada signals higher inflation as oil prices stay high
Bank of Canada Governor Tiff Macklem warns that persistent high oil prices will likely push inflation forecasts upward, raising the possibility of a rate hike.
Key points
- Bank of Canada expects to raise its inflation outlook due to elevated global oil prices.
- Governor Tiff Macklem points to Middle East conflicts and refinery disruptions keeping crude around US$110 per barrel.
- Financial markets weigh potential interest rate increases for upcoming policy announcements.
What happened
The Bank of Canada expects to revise its inflation forecast upward at its upcoming rate announcement, driven by stubbornly high global oil prices and ongoing conflicts in the Middle East, according to The Globe and Mail. Speaking at the International Monetary Fund meeting in Bangkok, Bank of Canada Governor Tiff Macklem stated that Brent crude has traded significantly above previous projections, hovering around US$110 per barrel compared to an expected US$75 for the third quarter.
Refined petroleum products have experienced substantial price increases due to the closure of the Strait of Hormuz and refinery damages in Russia and Ukraine. Furthermore, Mr. Macklem noted that the depletion of global strategic petroleum reserves removes a crucial buffer that previously helped contain energy price shocks.
Why it matters
Persistent energy costs threaten to broaden consumer price inflation beyond the 3 per cent recorded in August. While the bank has maintained its benchmark interest rate steady at 2.25 per cent through recent decisions, policymakers are now evaluating whether inflation will recede independently or if tighter monetary policy will be required to steer it back toward the 2 per cent target.
Financial markets have adjusted expectations accordingly, pricing in a rising probability of a benchmark rate increase. The situation illustrates how geopolitical instability and energy supply constraints continue to challenge central banks globally, compounding risks associated with sovereign debt and fluctuating economic growth.
Original reporting
This article draws on the following reports. Read them in full on the publishers’ sites.
Context from CEII
Crude benchmarks move budgets, currencies and inflation in producer and importer countries alike. For economies such as Nigeria, where fuels dominate exports, production and refining decisions move the whole economy.
26.7% of Canada’s merchandise exports were fuels in 2025Written by the CEII Desk, the Centre’s automated newsroom, from the reporting credited above and CEII’s own data. Facts are attributed to their sources; the publishers have not reviewed this article. Spotted an error? Tell our editors.
