Bank of Canada Governor Tiff Macklem has expressed concerns about the increasing risk of inflation, pointing to rising energy costs and the impact of Canada’s retaliatory tariffs on U.S. goods as potential drivers of higher prices for consumers and businesses. Macklem made these comments following the Bank of Canada’s decision to maintain its benchmark interest rate at 2.25 per cent, in line with economists’ expectations. This marks the seventh consecutive time the central bank has kept its policy rate unchanged since December 2025.
Macklem highlighted the potential cost implications for businesses due to the tariffs and the ongoing conflict in the Middle East, which has led to a resurgence in oil prices. He emphasized that prolonged conflicts in the region could lead to broader price increases across various goods and services. The bank acknowledged recent data indicating a strengthening economic recovery but also noted the heightened risks of inflation due to the ongoing war and trade tensions.
The U.S.-led conflict in Iran has contributed to a 13 per cent increase in U.S. benchmark oil prices since the bank’s last announcement in July. Additionally, the Canada-U.S. trade dispute has escalated, with Canada implementing dollar-for-dollar tariffs on $27.6 billion of U.S. goods in response to U.S. tariffs on Canadian products.
Last month, Canada introduced a $7.5 billion economic relief program to support affected workers and businesses, supplementing the existing tariff support measures totaling nearly $25 billion implemented over the past year and a half. Canada’s inflation rate rose to three per cent in July, primarily driven by higher gasoline and oil prices linked to the conflict in Iran, exceeding the bank’s target of two per cent inflation.
Looking ahead, economists anticipate a cautious approach from the Bank of Canada, with uncertainties surrounding trade relations and the impact of ongoing conflicts influencing future monetary policy decisions. While short-term borrowing costs are under the bank’s control, fluctuations in longer-term rates, influenced by global market dynamics, could impact Canada’s economic outlook. The central bank’s next rate announcement is scheduled for late October, with expectations of a status quo decision based on a recent poll of economists.