{"id":539098,"date":"2026-03-16T01:13:10","date_gmt":"2026-03-16T01:13:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/539098\/"},"modified":"2026-03-16T01:13:10","modified_gmt":"2026-03-16T01:13:10","slug":"bank-of-canada-expected-to-hold-rates-amid-oil-driven-inflation-risk","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/539098\/","title":{"rendered":"Bank of Canada expected to hold rates amid oil-driven inflation risk"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

The price of gasoline is expected to continue to rise after conflict in the Middle East.Christopher Katsarov\/The Canadian Press<\/p>\n

The Bank of Canada<\/a> is expected to hold interest rates steady this week while striking a more hawkish tone in its communications amid a surge in global oil prices<\/a> that has reignited concerns about inflation<\/a>.<\/p>\n

The price of a barrel of crude has risen more than 40 per cent over the past two weeks, as the war in the Middle East<\/a> has largely closed the Strait of Hormuz, through which around a fifth of global oil supplies typically travel.<\/p>\n

That\u2019s pushed up gasoline prices and airfares in Canada, and could increase the price of food and other products, particularly if the conflict between the United States, Israel and Iran stretches on through March and into April.<\/p>\n

Central banks tend to look through this type of commodity price shock when setting monetary policy, and the Bank of Canada is widely expected to leave its benchmark interest rate at 2.25 per cent on Wednesday for the third consecutive time.<\/p>\n

At the same time, economists expect Governor Tiff Macklem to signal that the bank is monitoring the situation closely and is prepared to adjust interest rates if necessary. Having let inflation get out of control in 2021 and 2022, central bankers are more sensitive today about the potential for supply-side shocks to become entrenched in a broader inflationary process. <\/p>\n

Why Canada\u2019s energy superpower status can\u2019t fully protect us from the oil crisis<\/a><\/p>\n

\u201cThey\u2019re going to have to sound more hawkish in the sense of saying, \u2018If we see any of this becoming broad-based and there\u2019s a move up in [inflation] expectations, then we might hike,\u2019\u201d said Paul Beaudry, a former Bank of Canada deputy governor and an economics professor at the University of British Columbia.<\/p>\n

When dealing with this kind of price shock, you want to \u201cget in front of the curve of having inflation expectations start to de-anchor,\u201d Mr. Beaudry said, referring to a situation where businesses and households expect prices to rise quickly. <\/p>\n

Before the outbreak of war in the Middle East, Canada\u2019s central bankers had indicated that further interest rate moves, in either direction, were unlikely any time soon.<\/p>\n

With inflation mostly under control, and the economy on track for slow but positive growth, they suggested the bank could stay on cruise control while it waited for the outcome of negotiations over the North American free-trade pact, slated for mid-2026.<\/p>\n

The oil price shock doesn\u2019t fundamentally change the economic picture in Canada, at least in the near-term, said Olivier Gervais, director of modelling and forecasting at Bank of Nova Scotia, and former director of Canadian economic projections at the central bank.<\/p>\n

What would $100 oil mean for Canada?<\/a><\/p>\n

Higher oil prices boost Canadian exports, oil company profits and government tax and royalty revenues. But the impact of all this on the real economy has to be weighed against consumers being squeezed at the gas pump and having less money to spend elsewhere.<\/p>\n

And a slew of recent economic data \u2013 including disappointing trade numbers and a weak labour market report released Friday \u2013 suggest the Canadian economy continues to struggle.<\/p>\n

From a monetary policy perspective, however, the oil price shock means the central bank will be less worried about potential downside risks to inflation from weak economic growth, Mr. Gervais said.<\/p>\n

\u201cCentral banks are trying to be risk managers at the end of the day, and this whole spike in oil prices removed a lot of the negative risk on inflation,\u201d he said. \u201cNow people are more worried about upside risks and I think the bank will communicate that.\u201d<\/p>\n

Financial markets have anticipated this shift in sentiment, and have moved from expecting no interest rate changes in 2026, to pricing in a hike in the back half of the year, according to Bloomberg data.<\/p>\n

Amber Kanwar\u2019s Weekly Setup: Oil shocks, bank risks and rate calls<\/a><\/p>\n

The latest inflation reading for January showed a 2.3-per-cent annual increase in the consumer price index (CPI). This number is sure to rise in the coming months, both because of the jump in oil prices, and because Ottawa\u2019s removal of the consumer carbon tax last April \u2013 which has pulled down the annual inflation number \u2013 will drop out of the year-over-year inflation calculation.<\/p>\n

\u201cYou\u2019d be talking about probably slightly above 3 per cent in terms of headline inflation, and of course that is above the Bank of Canada\u2019s 1- to 3-per-cent inflation control target range,\u201d said Josh Nye, senior economist at RBC Global Asset Management.<\/p>\n

The big question is how long the war continues and how long oil prices stay elevated, Mr. Nye said. The longer the energy market disruption, the bigger the risk that price pressures will migrate beyond gasoline and into a broader set of goods and services. <\/p>\n

There\u2019s also the risk that the gas pump sticker shock feeds into broader consumer and business inflation expectations. Rising inflation expectations can become a self-fulfilling prophecy, as companies raise prices ahead of expected cost increases and individuals demand higher wages. <\/p>\n

\u201cI\u2019d certainly say that central bankers are more acutely aware of these second-round effects now than they were, say, five years ago, having gone through the experience of the pandemic, and then the oil price shock of 2022 \u2013 both supply-side shocks,\u201d said Bradley Saunders, North America economist at Capital Economics. <\/p>\n

Canadian dollar hits 10-day low as jobs slide cools rate hike bets<\/a><\/p>\n

But that doesn\u2019t mean that the Bank of Canada is about to pre-emptively raise interest rates in response to today\u2019s oil price shock, he said.<\/p>\n

The situation is much different than it was in 2022, when Russia\u2019s invasion of Ukraine caused a spike in oil and other commodity prices. At that time, inflation was already heating up, unemployment was low, the central bank\u2019s policy rate was near zero and fiscal policy was highly stimulative. Caught on its back foot, the bank started raising interest rates rapidly in the spring of 2022.<\/p>\n

Today, inflation is near the central bank\u2019s target, monetary policy is in a neutral setting, and there is plenty of slack in the economy alongside elevated uncertainty over the future of the North America free-trade agreement. In that environment, a commodity price shock is less likely to feed broader inflationary pressures. <\/p>\n

\u201cIn terms of the lessons for the Bank of Canada, I think we can learn a lot from how the bank responded a decade ago from 2010 to 2014,\u201d Mr. Saunders said. <\/p>\n

While the price of oil rose significantly over that period, core inflation was under control, the bank estimated that there was slack in the economy and it was worried about the eurozone debt crisis. <\/p>\n

\u201cAll three of those factors urged policymakers to act with caution\u201d and not raise interest rates, Mr. Saunders said. \u201cI think those three all very much hold today and I think that\u2019s a far better point of comparison than 2022.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: The price of gasoline is expected to continue to rise after conflict in…\n","protected":false},"author":2,"featured_media":539099,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-539098","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/539098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=539098"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/539098\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/539099"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=539098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=539098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=539098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}