Macklem says the Bank of Canada will raise its inflation forecast sharply because oil stays expensive

The Bank of Canada expects to raise its quarterly inflation forecast significantly this month because of persistently high crude oil and petroleum prices, Governor Tiff Macklem said¹. Reuters reported the same from Ottawa, where Macklem set out the expectation ahead of the bank’s forthcoming projection round³. Macklem said he expects the central bank to revise the forecast higher at its upcoming rate announcement⁴.

He also said he is seeing more evidence that higher oil prices are supporting economic growth in Canada, which is the unusual part of the picture for a commodity exporter facing the same energy shock as its trading partners². Separately, he warned that persistently high global energy prices will drive up the outlook for inflation at home⁵, and said the global economy has held up well but that its resilience is being tested⁷.

Why it matters to investors

Canada is now on the record saying the energy shock has moved its inflation forecast, rather than describing it as a relative price change that will pass through and fade. That is a different stance from the one several central banks took through the early part of the shock, and it arrives days before a decision markets already describe as live⁸.

For rate markets, the sequencing matters more than the forecast. The bank is still expected to hold rates steady at its next meeting on October 28, but financial markets are pricing in an increasing chance of rises⁶. A forecast revision without a move leaves the hike risk sitting in the following meetings; a revision with a move would confirm that an oil shock is being treated as an inflation problem rather than a terms-of-trade gain.

For a crude exporter, Macklem’s two statements pull in opposite directions: higher oil supports Canadian output² while raising domestic inflation⁵. Housing is where the tension lands first, with potential rate rises now hanging over the market’s outlook⁶.

What to watch

The pair of data releases due before the decision, which markets are treating as the input that settles it⁸. Whether the forecast revision comes with a change in the policy rate or only with a change in language⁶. And whether other commodity exporters follow Macklem in describing the energy shock as something that lifts both growth and inflation at once, rather than one or the other^2,5.