The Bank of Canada (BoC) is preparing to significantly raise its inflation forecast this month as elevated oil prices and ongoing Middle East tensions increase concerns about persistent price pressures, Governor Tiff Macklem said on Saturday.
The central bank's revised quarterly inflation and economic growth projections will play a crucial role in its upcoming interest rate decision on October 28, as policymakers assess whether rising energy costs could trigger broader inflation across Canada's economy.
Speaking to reporters during a conference call from Bangkok, Macklem warned that continued disruptions to oil shipments and damage to refinery infrastructure have increased the likelihood of inflation becoming more widespread and difficult to control.
He emphasized that the Bank of Canada remains committed to its 2% inflation target and stands ready to adjust monetary policy if necessary to maintain price stability.
Despite growing expectations of tighter monetary policy, financial markets currently anticipate no interest rate changes at the October 28 meeting or the central bank's final policy announcement in December.
However, money markets are pricing in approximately 100 basis points of interest rate hikes in 2027, equivalent to a cumulative increase of one percentage point. Such tightening could raise borrowing costs for Canadian households and businesses while potentially weighing on interest-sensitive sectors of the stock market.
Higher crude oil and petroleum product prices remain a major concern for policymakers. West Texas Intermediate (WTI) crude futures closed at $101.84 per barrel on October 16, gaining 3.95%, highlighting the continued pressure on global energy markets.
Macklem acknowledged that the global economy has demonstrated resilience despite geopolitical conflicts in the Middle East and Ukraine. Nevertheless, he cautioned that rising costs, tighter financial conditions and limited government fiscal flexibility are testing that resilience.
For the Bank of Canada, the central question is whether higher energy prices will create lasting inflationary pressures beyond fuel and transportation costs.
The upcoming inflation forecast will help determine whether consumer prices can gradually return toward the central bank's target without additional intervention.
Macklem indicated that policymakers must decide whether inflation will ease naturally or whether higher Canadian interest rates will be required to guide inflation back toward 2%.
The October 28 monetary policy announcement is therefore expected to attract significant attention from investors, businesses and households seeking clarity on Canada's inflation outlook and future borrowing costs.
