Bank of Canada held policy rate at 2.25% on Wednesday, as widely expected, with Governor Tiff Macklem saying recent growth and inflation data had evolved broadly in line with July projections. In his opening statement in Ottawa, Macklem highlighted a “broadening recovery” after GDP expanded 3.3% in Q2, with gains in consumption, housing, exports and business investment. Labour market has also improved, with unemployment edging down to 6.4% in July. Still, BoC sees “continued excess supply”, while new US tariffs and uncertainty over Canada-US trade threaten sustainability of recovery.
Inflation remains around 3%, but BoC continues to distinguish direct energy shock from broader underlying pressure. Macklem noted inflation excluding gasoline was 2.2% in July, while core measures remained close to 2%. He said Bank has been “looking through the direct impact of higher oil prices on inflation”, but is “monitoring closely for any signs that they are spreading to the prices of other goods and services.” So far, there has been little evidence of such spillover. However, with Middle East conflict unresolved and Hormuz shipments still curtailed, Macklem warned that “the longer oil prices and refinery margins stay high, the greater the risk that higher energy prices spill over and turn into persistent inflation.”
That leaves BoC in wait-and-assess mode rather than pointing clearly toward an imminent move. Governing Council said “upside risks to inflation have increased”, while new tariffs have made growth outlook more uncertain. Macklem stressed monetary policy cannot offset tariffs or control global energy prices, but can ensure those shocks “don’t jeopardize price stability in Canada.” For October 28 meeting, focus will therefore be on whether economic rebound remains durable and, more importantly, whether oil and tariff-related cost pressures begin spreading beyond their direct effects.
Key Takeaways
- BoC held policy rate at 2.25%, saying growth and inflation have evolved broadly in line with July projections.
- Canada’s recovery is broadening, with Q2 GDP up 3.3%, but BoC still sees “continued excess supply” and warns new US tariffs could weaken investment and hiring.
- CPI inflation remains around 3%, largely because of gasoline. Excluding gasoline, inflation was 2.2% in July, while core measures stayed close to 2%.
- Macklem said BoC is “looking through the direct impact of higher oil prices on inflation”, but is monitoring whether those pressures spread into other goods and services.
- BoC has seen “little evidence” of broader spillovers so far, but warned that prolonged high oil prices and refinery margins increase risk of persistent inflation.
- Governing Council said “upside risks to inflation have increased”, while tariffs have made growth outlook more uncertain.
- October 28 meeting will hinge on whether economic rebound remains sustainable and whether energy and tariff-related costs begin broadening into underlying inflation.
