Macklem Warns Global Energy Shocks Threaten Inflation Outlook

Bank of Canada Governor Tiff Macklem warned during a press conference at the International Monetary Fund meetings in Bangkok that persistent global energy prices are likely to push up Canada's inflation outlook, according to reporting from CityNews Toronto.

Macklem stated that while the global economy has performed better than expected despite higher borrowing costs, trade disruptions, and wars in Ukraine and Iran, that resilience is now "under strain." He specifically pointed to the Middle East conflict, noting that Houthi attacks on Saudi Arabia, damage to Gulf refining capacity, and the closure of the Strait of Hormuz suggest no immediate relief for oil prices. Macklem added that the effectiveness of releasing strategic oil reserves to contain price shocks is limited, as those reserves are being depleted.

These global pressures directly impact the cost of heating oil, diesel, and gasoline for Canadians. While the Bank of Canada is mandated to maintain a two per cent inflation target, Canada's inflation has remained at three per cent for two consecutive months. Consequently, Macklem indicated that the inflation outlook will likely be "quite a bit higher" than the July forecast, which had estimated that inflation would cool to roughly 2.5 per cent during the second half of the year.

Macklem signaled that the central bank is prepared to raise its policy rate if price pressures spread, questioning whether inflation will return to the target on its own or if rate hikes are necessary. Despite these concerns and headwinds from U.S. tariffs, Macklem expressed confidence in Canada, citing investment recovery and the relative stability of the Canadian dollar as signs of external optimism. The Bank of Canada is scheduled to release updated economic and inflation forecasts alongside its interest rate decision on Oct. 28.