Bank of Canada rate hikes priced for next year as oil lifts inflation outlook
Economists mostly leaned toward a hold this month. TD Economics and CIBC both expected the Bank to stay on the sidelines in October. Capital Economics expects an eventual increase to 2.75%, the midpoint of the Bank’s neutral range, as a guard against energy and food price risks.
Macklem points to oil and refinery damage
Macklem spoke to journalists by conference call from Bangkok on Saturday, Reuters reported. The Bank’s new quarterly inflation and growth forecasts will feed into the October 28 decision.
He said the ongoing conflict in the Middle East, disrupted shipments and damaged refinery capacity have increased the risk that inflation broadens and becomes more persistent. The Bank’s anchor remains its inflation target. “Our beacon is our 2% inflation target,” Macklem said, adding that policy-makers are prepared to adjust monetary policy as needed.
Central bankers’ main task, Reuters reported, is to judge whether higher oil and fuel prices will spill into the wider economy. Macklem framed the October 28 choice as whether inflation is likely to return toward target on its own, or whether higher interest rates are needed to nudge it back.
He also said the global economy has shown resilience despite the Middle East conflict and the Russia-Ukraine war, but that resilience is being tested by higher costs and tighter financial conditions. Governments, he added, have less fiscal room to manoeuvre and need to adjust their policies to rebuild it.
