Bank of Canada Governor Tiff Macklem has raised concerns about the increasing risk of inflation, citing rising energy costs and Canada’s new 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 emphasized that the ongoing conflict in the Middle East poses a significant challenge, leading to a resurgence in oil prices. He warned that prolonged tensions in the region could potentially impact prices of various goods and services, exacerbating the risk of inflation. Despite recent data confirming a strengthening economic recovery, the bank highlighted the uncertainties stemming from the war and U.S. tariffs, which could contribute to inflationary pressures.
The escalation of the Canada-U.S. trade dispute has further complicated the economic landscape, with President Donald Trump imposing substantial tariffs on Canadian products. In response, Canada has matched these tariffs dollar-for-dollar on equivalent U.S. goods. To mitigate the impact on affected workers and businesses, the government introduced a $7.5-billion expanded economic relief program, supplementing the existing tariff support measures totaling nearly $25 billion over the past 18 months.
Recent developments have pushed Canada’s inflation rate to three per cent in July, primarily driven by increased gasoline and oil prices influenced by geopolitical tensions. Macklem expressed concern over the elevated inflation rate, emphasizing the bank’s objective of achieving two per cent inflation. The prevailing uncertainties surrounding trade relations and the potential implications of sustained tariffs on key sectors further cloud the economic outlook.
While the Bank of Canada maintains control over short-term borrowing costs, longer-term rates are influenced by the bond market. Macklem highlighted the impact of global bond yield movements on Canada’s market, noting the importance of distinguishing between normal market volatility and potential instability. The bank remains vigilant about risks posed by sudden unwinding of leveraged positions and liquidity constraints.
Economists widely anticipated the bank’s decision to hold the key rate steady, reflecting the prevailing economic uncertainties. The Bank of Canada’s next rate announcement is scheduled for October 28, with policymakers closely monitoring the evolving economic landscape and external factors influencing monetary policy decisions.