Bank of Canada Governor Tiff Macklem has highlighted the growing risk of inflation, citing increased energy costs and the potential impact of Canada’s counter-tariffs on U.S. goods as key drivers. The central bank recently maintained its benchmark interest rate at 2.25 per cent, marking the seventh consecutive meeting without a change.
Macklem expressed concerns about the escalating conflict in the Middle East, stating that rising oil prices could lead to broader price increases across various goods and services. The Bank of Canada acknowledged the strengthening economy but warned of inflation risks due to the ongoing war and U.S. tariffs.
In response to the trade tensions, Canada implemented dollar-for-dollar tariffs on U.S. products, matching the levies imposed by the U.S. on Canadian goods. The government introduced a $7.5 billion relief program to support affected businesses and workers, adding to the previous tariff assistance.
Canada’s inflation rate surged to three per cent in July, primarily driven by higher gasoline prices influenced by the Middle East conflict. Macklem emphasized the need to maintain two per cent inflation, with expectations of potential rate hikes in the fourth quarter of 2026.
Economists noted uncertainties surrounding trade relations and the impact of tariffs on economic projections. The Bank of Canada’s decision to hold rates was deemed unsurprising given the trade war’s uncertainties. Bond market dynamics and global yield movements were also highlighted, with investors closely monitoring interest rate developments.