Bank of Canada Governor Tiff Macklem has highlighted the growing risk of inflation, pointing to increased energy costs and incoming tariffs on U.S. goods as potential drivers of rising prices for consumers and businesses in Canada. Macklem made these comments following the Bank of Canada’s decision to maintain its benchmark interest rate at 2.25 per cent, consistent with market expectations. This marks the seventh consecutive time the central bank has kept its policy rate unchanged since December 2025.
Macklem expressed concerns about the impact of tariffs on businesses, noting that while they might impose significant costs, they apply to a limited range of products. However, he emphasized that the escalating conflict in the Middle East, leading to a surge in oil prices, poses a more substantial threat to inflation if prolonged.
The Bank of Canada’s recent assessment affirmed expectations of a broadening economic recovery but also acknowledged the heightened risks of inflation due to the ongoing war in the Middle East and the escalating trade tensions with the U.S. Oil prices in the U.S. have surged approximately 13 per cent since the previous announcement in July, partly attributed to the intensified conflict in Iran affecting global oil supply routes.
Simultaneously, the trade dispute between Canada and the U.S. has intensified, with both countries imposing significant tariffs on each other’s goods. U.S. President Donald Trump imposed tariffs on Canadian products, prompting Canada to retaliate with equivalent tariffs on U.S. goods. To support affected workers and businesses, the Canadian government introduced a $7.5-billion expanded economic relief program in addition to previous tariff relief measures.
Commenting on the bank’s decision, CIBC chief economist Avery Shenfeld noted the uncertainties surrounding trade relations amid the ongoing trade war, emphasizing the need for clarity on future developments. Shenfeld highlighted the potential impact of trade uncertainties on economic outlook, especially in the absence of anticipated tariff reductions on key sectors like autos, metals, and lumber.
A recent Reuters poll of economists indicated unanimous expectations that the Bank of Canada would maintain its key rate, reflecting the prevailing economic uncertainties. The next rate announcement by the central bank is scheduled for October 28.