Bank of Canada Governor Tiff Macklem has expressed concerns about the increasing risk of inflation, emphasizing that surging energy costs and the incoming tariffs on U.S. goods could potentially drive up prices for consumers and businesses in Canada.
Macklem’s comments followed the Bank of Canada’s decision to maintain its benchmark interest rate at 2.25 per cent, consistent with expectations. The central bank has kept its rate unchanged since December 2025, marking the seventh consecutive time it has opted for stability in its policy rate.
Addressing reporters in Ottawa, Macklem highlighted the impact of counter-tariffs and U.S. tariffs on businesses, stating that while these tariffs are steep, they affect a relatively limited range of products. However, he underscored that the ongoing conflict in the Middle East poses a more significant risk, particularly with the resurgence of oil prices.
The central bank acknowledged recent data indicating a broader economic recovery but also cautioned about the potential inflationary effects of the Middle East conflict and U.S. tariffs. Notably, U.S. benchmark oil prices have surged approximately 13 per cent since the bank’s previous announcement in July, partly due to disruptions caused by the intensified U.S.-led war in Iran.
Furthermore, the Canada-U.S. trade dispute has escalated, with President Donald Trump imposing substantial tariffs on Canadian products, reciprocated by Canada with equivalent tariffs on U.S. goods. The Canadian government has introduced a $7.5-billion economic relief program to support affected workers and businesses in addition to previous tariff relief measures.
In July, Canada’s inflation rate rose to three per cent, primarily driven by the Middle East tensions impacting gasoline prices. Macklem expressed concern over the elevated inflation rate, emphasizing the bank’s objective of maintaining two per cent inflation.
CIBC chief economist Avery Shenfeld observed that the central bank’s decision to maintain rates amid trade uncertainties was expected, given the complexities of the ongoing trade war. He noted that the uncertainties surrounding trade relations could influence future economic trends.
Regarding the bond market, while the Bank of Canada directly manages short-term borrowing costs, longer-term rates are influenced by the bond market. Macklem highlighted the spillover effect of global bond yield movements into Canada, emphasizing the distinction between market volatility and instability.
According to a recent Reuters poll of economists, all 35 participants anticipated that the Bank of Canada would keep its key rate unchanged in the latest decision. The next rate announcement is scheduled for October 28.
