Bank of Canada Governor Tiff Macklem, speaking in Halifax, highlighted concerns about inflation drifting higher in the coming months, citing persistent uncertainty and elevated fuel margins as key risks to headline inflation [1][3]. Macklem noted that the new era of uncertainty is not going away any time soon and emphasized that higher fuel margins could take some time to normalize, which is a worry as it adds persistence to inflation [1]. He stated, 'If oil prices stay near $100 a barrel, we'd expect inflation to edge up in the coming months,' and pointed out that recent gas prices have been more consistent with an oil price almost $40 higher than where it has been, reflecting damage to global refining capacity [3].
The Bank of Canada has cut its Q4 annualized growth forecast to 0.75% [1], and Macklem warned that if new US tariffs remain in place, Q4 growth could be roughly halved to below 1% [3]. Despite these challenges, there is growing evidence that many Canadian businesses have started to adapt to US tariffs [3]. Macklem also mentioned that the bank expects growth in the labor force will be close to zero over the next few years [3].
On monetary policy, Macklem stated that the key question is whether the current rate is the right one or if rates need to be raised, cautioning that if the BoC is too slow to raise rates, it may need to tighten policy quickly and more than if it had moved earlier [1]. He added, 'We don't want to raise rates and restrain growth if inflationary pressures are contained,' but also warned against being too slow to respond if inflationary pressures become more persistent [3]. He stressed the importance of looking beyond the initial shock of higher oil prices when making rate decisions [3].
Market reaction data shows the Canadian Dollar was the strongest against the Japanese Yen today, with a 0.02% gain, but lost ground against other major currencies such as the USD (-0.32%) and EUR (-0.18%) [1].
CONCLUSION
Governor Macklem's comments signal heightened vigilance on inflation risks, particularly from sustained high oil prices and fuel margins, while also acknowledging the drag from US tariffs and slow labor force growth. The Bank of Canada faces a delicate balance between containing inflation and supporting economic growth, with rate decisions likely to remain data-dependent. The Canadian Dollar showed mixed performance, reflecting the uncertain outlook.