Bank of Canada left its policy rate unchanged at 2.25%, maintaining a cautious stance as it navigates the inflation impact of the Middle East conflict. While headline inflation is rising, policymakers signaled they are prepared to look through the immediate energy-driven shock, focusing instead on whether it feeds into broader and more persistent pressures.
Inflation projections were revised higher in the near term. CPI rose from earlier trends to 2.4% in March and is expected to climb further to around 3% in April, driven primarily by gasoline prices. However, the BoC emphasized that core inflation remains stable “just above 2%”, and there is so far “little evidence” that higher energy costs are feeding through into goods and services prices more broadly. Inflation is still expected to return to the 2% target early next year as oil prices are assumed to ease.
On growth, the outlook remains broadly unchanged despite the global shock. GDP is projected to rise by 1.2% in 2026, 1.6% in 2027, and 1.7% in 2028. The economy is recovering from a contraction in late 2025, supported by consumer and government spending, while exports and business investment remain constrained by tariffs and trade uncertainty. The labor market continues to show softness, with unemployment holding in the 6.5–7% range.
The oil shock presents a mixed impact for Canada. As a net exporter of energy, higher oil prices “increase national income” even as “consumers are squeezed by higher gasoline prices”. This dynamic allows the BoC to tolerate near-term inflation volatility while maintaining its focus on underlying economic conditions.
