Bank of Canada governor Tiff Macklem has raised concerns about the strain on global economic resilience due to persistently high energy prices, which are expected to drive up inflation in Canada. Speaking at the International Monetary Fund meetings in Bangkok on Saturday, Macklem noted that while the global economy has performed better than expected despite ongoing conflicts in Iran and Ukraine, as well as trade disruptions and rising borrowing costs, the resilience is increasingly under pressure.
The Middle East conflict, particularly the Houthi attacks on Saudi Arabia and disruptions in the Gulf region, has led to a surge in global oil prices with no immediate relief in sight. This, in turn, is affecting domestic prices for gasoline, diesel, and heating oil in Canada. Macklem acknowledged that strategic energy reserves have helped contain the energy price shock but warned that these resources are finite.
The Bank of Canada is set to release updated economic and inflation forecasts alongside its interest rate decision on Oct. 28. Inflation in Canada has remained at 3% for two consecutive months, and Macklem anticipates that the outlook for inflation will be higher than previously projected. The central bank's last forecast in July had expected inflation to cool to around 2.5% in the second half of this year.
Macklem indicated that the Bank of Canada is prepared to raise interest rates if signs of spreading price pressures emerge. He emphasized the need to assess whether inflation will return to the 2% target on its own or if monetary policy intervention is necessary. Despite economic headwinds from U.S. tariffs and global instability, Macklem expressed confidence in Canada's relative stability and optimism among external investors.