Bank of Canada expects sharply higher inflation as oil prices surge

what happened

Bank of Canada Governor Tiff Macklem said on Saturday that the central bank expects to substantially raise its quarterly inflation forecast this month. The reason is persistently high prices for crude oil and petroleum products, according to a report by TradingView.

Macklem said the Middle East conflict, curtailed shipments and damage to refinery capacity have increased the risk that inflation broadens and becomes more persistent. He stressed that the bank remains committed to its 2% inflation target and is prepared to adjust monetary policy as needed. The new forecasts will feed into the October 28 rate decision.

As of Saturday, money markets were not pricing in a change in rates on October 28 or at the December meeting, but they were pricing in increases totaling 100 basis points over the next year.

why it matters

For markets, this signals that central banks may move toward tightening in response to an energy shock. Higher rate expectations tend to support the Canadian dollar but weigh on bonds and risk assets. The October 28 decision and new quarterly projections will be key.

market impact

Canadian dollar and bonds: expected rate hikes support CAD and pressure the bond market

tags

instruments