The Bank of Canada will raise its quarterly inflation forecast significantly this month, Governor Tiff Macklem told journalists on October 17, because crude oil and petroleum product prices have stayed persistently high while shipments remain curtailed and refinery capacity is damaged. The new inflation and growth forecasts will be published with the bank’s rate decision on October 28.
Macklem framed the decision in one question: whether inflation is likely to come back down towards the 2 percent target on its own, or whether the bank will have to raise interest rates to nudge the path back towards target. He said the risk that inflation broadens and becomes more persistent has gone up, and that the bank is prepared to adjust monetary policy as needed, with the 2 percent target as its beacon.
The market has not yet moved the near decisions. As of October 17, money markets priced no change on October 28 or at the bank’s final decision of the year in December, but priced increases of 100 basis points over the course of next year. That split is the trade the forecast revision speaks to: the October decision itself looks held, and the argument is about the slope of 2027.
Macklem also said the global economy had shown resilience despite the Middle East conflict and the war in Ukraine, but that resilience was being tested by higher costs and tighter financial conditions, and that governments have less fiscal room than they did and need to rebuild it. The immediate input arrives on Monday, October 19, when the bank publishes its third quarter Business Outlook Survey and Canadian Survey of Consumer Expectations, the last survey evidence before the decision.