BoC’s Macklem Says Further Rate Hikes May Be Needed as Energy Prices Threaten Inflation
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- Macklem says further BoC rate hikes may be needed
- CPI seen near 3.5% by year-end, above 3% through 2027
- Decisions to be made one meeting at a time; growth slows in Q4
Bank of Canada Governor Tiff Macklem told the House of Commons Standing Committee on Finance that further rate hikes may be needed, as the war in the Middle East keeps energy prices higher for longer. He described last week’s 25 bp hike to 2.5%, the first increase since July 2023, as necessary to reduce the risk that elevated energy costs become generalized inflation. [STORY_ID: 4693cfec-c735-47c3-b15c-ebad7f0cd0c5]
The central bank projects CPI rising to about 3.5% by the end of the year, staying at or above 3% through 2027, and returning near 2% by mid-2028. Macklem said cost pass-through is expected to increase over the next year, leaving less scope for monetary accommodation.
On growth, the BoC sees GDP at 1% in 2026 and 2% in 2027 and 2028. The outlook has improved modestly despite US trade actions, though growth is likely to slow in Q4 as new US tariffs weigh. Macklem stressed the bank will proceed carefully given uncertainties, with decisions taken one meeting at a time.