Macklem flags possible BoC rate hikes as oil lifts inflation outlook
Bank of Canada Governor Tiff Macklem told lawmakers further rate hikes may be needed as Middle East conflict keeps oil prices elevated, lifting the bank's inflation forecast to 3.5% by year-end.
Speaking to the House of Commons Standing Committee on Finance, Macklem said persistent conflict in the Middle East has pushed global oil prices higher and is expected to keep them elevated, raising fuel costs for households and input costs for businesses.
The central bank now projects consumer price index (CPI) inflation reaching 3.5% by the end of this year, staying at or above the 3% upper end of its target band through much of 2027, before easing back toward 2% by mid-2028. Macklem said greater pass-through from higher oil prices and refinery margins into consumer prices is expected over the coming year.
On growth, the BoC governor pointed to gross domestic product (GDP) expansion of 3.3% in the second quarter, with third-quarter growth tracking near 2%. He expects activity to slow in the fourth quarter because of new US tariffs before picking back up in 2027. The bank forecasts GDP growth of 1% in 2026 and around 2% in both 2027 and 2028, and described the Canadian economy as showing resilience despite US trade measures.
Macklem said any additional tightening would be decided meeting by meeting given high uncertainty, and added that he does not currently view fiscal policy as working against the bank’s efforts to bring inflation down.
A firmer rate-hike signal from the Bank of Canada tends to support the Canadian dollar and Canadian government bond yields, while an inflation outlook tied to oil prices keeps the loonie sensitive to developments in the Middle East and energy markets.
Source: FXStreet