Macklem sees higher inflation forecast as oil remains above US$100

Bank of Canada Governor Tiff Macklem said the central bank expects to raise its inflation forecast this month as oil prices remain high, putting possible interest-rate increases back in view. He said crude prices around US$100, if sustained, could lift inflation from its current 3 per cent.

The bank’s central concern is whether inflation will move back toward its 2 per cent target without higher rates. Macklem cited Brent crude trading around US$110 and West Texas Intermediate near US$101. Those prices are above the level at which he said inflation could gradually rise.

In an account published by The Globe and Mail, he said the bank will assess whether inflation can return to target on its own or whether rate increases may be required to steer it there. The report also said the bank has held its benchmark rate at 2.25 per cent for seven consecutive decisions.

The expected forecast revision reflects a changed oil-price outlook, while the decision on rates remains conditional. The Globe and Mail reported that the bank is weighing inflation against economic growth risks associated with the trade war with the United States.

Tekedia likewise described higher oil and petroleum-product prices as increasing the risk of broader and more sustained price pressures, and said rate increases are in focus ahead of the October 28 policy decision. The accounts do not give a single shared view of market pricing for that decision.

The Globe and Mail said markets saw about a 35 per cent chance of a quarter-point increase on October 28, rising to 95 per cent for the December 9 decision. Tekedia, citing market expectations, said investors were not pricing in a rate change at either the October meeting or the bank’s final policy decision of the year.

These descriptions are incompatible assessments of expectations for the same decisions; neither establishes what the Bank of Canada will decide. The Australian coverage offers a related example of how energy prices can complicate inflation forecasts, but it concerns a different central bank and economy.

The Sydney Morning Herald reported that the Reserve Bank of Australia built its forecasts on oil prices up to US$20 per barrel below recent levels and plans to update them next month. It also said Australian inflation rose 0.4 per cent in August and would have fallen without higher petrol prices.

The Australian bank is weighing rate increases against slower growth and possible job losses. The Canadian bank’s next decision is scheduled for October 28, according to the reports, but Macklem’s comments describe an assessment still underway rather than a commitment to raise rates.

The October decision will depend on more than oil’s immediate effect on inflation, Tekedia reported. The central bank must judge whether the price pressure will persist and whether inflation can return to target without further tightening. For households and businesses in Canada, the stakes are the competing effects of higher inflation and potentially higher borrowing costs.

Macklem’s account links sustained oil near US$100 to inflation drifting above 3 per cent, while the bank is also considering economic growth risks. The coming policy choice therefore turns on the persistence of energy-driven price pressure and its balance against growth, not on the forecast revision alone.