Bank of Canada Governor Tiff Macklem has cautioned that the global economy is facing increasing strain due to persistently high energy prices, which could elevate inflation in Canada. Speaking at the International Monetary Fund meetings in Bangkok on Saturday, Macklem noted that while the global economy has shown resilience amid ongoing conflicts in Iran and Ukraine, as well as trade disruptions and rising borrowing costs, this resilience is now under pressure.
The governor highlighted that the Middle East conflict, particularly Houthi attacks on Saudi Arabia and disruptions in the Gulf region, is driving up global oil prices with no immediate relief in sight. This, in turn, affects domestic prices for gasoline, diesel, and heating oil in Canada. Macklem also mentioned that the Bank of Canada will release updated economic and inflation forecasts alongside its interest rate decision on October 28.
Inflation in Canada has remained at three percent for two consecutive months, higher than the Bank of Canada's two percent target. Macklem indicated that the outlook for inflation is likely to be higher than previously projected in July, when the forecast suggested inflation cooling to around 2.5 percent in the second half of this year. The central bank is prepared to raise interest rates if it determines that inflation is unlikely to return to its target on its own.
Despite economic challenges, including U.S. tariffs and global instability, Macklem expressed confidence in Canada's economic stability. He noted that the relative strength of the Canadian dollar against the U.S. dollar reflects optimism in Canada's governance and investment recovery.