Bank of Canada policymakers say another rate increase may be needed if high energy costs spread through the economy
OTTAWA – National News Service – Bank of Canada policymakers say they may need to raise interest rates again if high energy costs keep feeding into prices, but they plan to move carefully as trade tensions and a softer labour market cloud the outlook.
A summary released Tuesday shows the governing council considered leaving its policy rate at 2.25 per cent before voting to increase it to 2.5 per cent on Oct. 28. The quarter-point move was the bank’s first rate increase since 2023.
The debate matters for households and businesses because the policy rate influences variable-rate loans, mortgages and other borrowing costs. The bank said another increase is possible, but it did not promise one. It will decide meeting by meeting as new data arrive.
The central bank’s concern is that a long energy shock could move beyond gasoline, diesel, heating oil and airfares. Businesses have largely absorbed higher costs, but surveys suggest more firms expect to pass them to customers next year.
The council expects inflation to reach 3.5 per cent at the end of 2026 and stay above three per cent through much of 2027. Core measures remain close to two per cent, and inflation excluding gasoline was 2.2 per cent when members met.
Those figures, unused economic capacity and the expected drag from new U.S. tariffs supported holding rates steady. The case for an increase rested on oil prices about US$35 a barrel above the bank’s July assumption and an economy holding up better than forecast.
Members concluded that economic resilience leaves less spare capacity to cushion price pressures. They also stressed uncertainty from the Middle East conflict, Canada-U.S. trade relations, global financial conditions and the speed at which business costs reach consumers.
The next scheduled interest-rate decision is Dec. 9. Until then, inflation, employment and spending data will help determine whether the October move was enough or whether borrowers should prepare for another increase.
