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Macklem expects higher Canadian inflation forecast as oil stays expensive

Bank of Canada governor Tiff Macklem expects a significant increase in the bank’s quarterly inflation forecast as crude and refined-product prices remain high. The new projections feed into the October 28 rate decision, while the bank retains its 2% target. He warned that disrupted shipments and damaged refinery capacity increase the risk of energy costs spreading into more persistent inflation.

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Tiff Macklem speaks at a plain lectern beside a Canadian flag, with daylight entering through broad windows behind him.

Energy costs lift the forecast

Bank of Canada governor Tiff Macklem expects the central bank to raise its quarterly inflation forecast significantly this month. Speaking from Bangkok, Thailand, on October 17, he pointed to persistently expensive crude oil and refined petroleum products as the Middle East conflict continues.[1], [2]

Macklem said curtailed shipments and damage to refinery capacity had increased the risk that inflation becomes broader and more persistent. His concern extends beyond the immediate increase in fuel prices to the possibility that those expenses spread through the economy.[1]

October 28 decision uses new projections

The bank’s new inflation and growth projections are inputs to the October 28 interest-rate decision. Macklem reiterated its 2% inflation target and said monetary policy could be adjusted as needed. The policy question he described is whether inflation returns toward that target on its own or requires higher interest rates.[1]

High costs test economic resilience

Macklem said the world economy had remained resilient despite the Iran and Ukraine wars. Higher costs and tighter financial conditions were testing that resilience, however. He also said governments had less fiscal room to manoeuvre and needed to adjust their policies to rebuild it.[1]

References

  1. News sourceReuters / MarketScreenerMacklem expects a significant increase in Canada’s inflation forecast↩1↩2↩3↩4
  2. News sourceThe Globe and MailMacklem expects a higher inflation forecast as oil stays expensive↩
Russia-Ukraine warCentral banks and the rate cycleEnergy transition and climate

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