Bank of Canada Governor Tiff Macklem highlighted how higher oil prices are benefiting Canada’s economy, contrasting the country’s position as a net energy exporter with other major economies. Speaking from the International Monetary Fund and World Bank Group meeting in Bangkok, Macklem noted that while elevated gas prices reduce consumer and business spending, they also boost exports, incomes, government revenues, and investment. This dynamic is driving economic growth despite challenges like trade tensions with the U.S. and slower population growth.
The central bank now sees stronger evidence that sustained high energy prices are supporting growth, reversing earlier expectations that the energy sector would treat the price surge as temporary. Corporate profits surged in the second quarter, Alberta is projected to run a surplus, and Prime Minister Mark Carney introduced a tax break to stimulate business investment. The Bank of Canada warned that if inflation pressures spread beyond gasoline prices, it may need to raise interest rates.
Macklem emphasized that the ongoing conflict in the Middle East suggests no near-term resolution to high oil prices, which will likely lead to a higher inflation forecast in the bank’s upcoming monetary policy report. The next rate decision is set for October 28, with traders pricing in over a third chance of a hike.