Governor focuses on long-term expectations as oil shock unsettles borrowers
Bank of Canada governor Tiff Macklem signalled he is prepared to look through a fresh burst of inflation in the months ahead, even as the war in Iran pushed energy prices higher and unsettled borrowers facing renewal.
Speaking to reporters from Washington on the sidelines of the IMF and World Bank meetings, Macklem said he expects March inflation to move higher from February’s 1.8% reading but likely remain below 3%, and emphasized that the central bank’s real focus lies further out on the horizon.
“It’s certainly going to go up,” Macklem said of the March inflation print due Monday.
“We are not surprised, and we are not even that worried if we see near-term inflation expectations go up.”
He drew a sharper line around the risk that businesses and households might stop believing inflation will return to the 2% target, after it surged above 8% four years ago.
Total CPI peaked at 8.1% in June 2022, the highest in nearly four decades, leaving a deep imprint on consumer and business psychology.
“If people don’t expect inflation to return to 2% after a spike soon enough, that would be a concern,” he said.
“We don’t want to jump too early and raise interest rates and lower growth, particularly when growth is already weak. On the other hand, you don’t want to be late and let inflation get a hold and become entrenched.”
Macklem said policymakers would lean heavily on medium‑ and longer‑term expectations, typically over three to five years, when deciding whether further rate hikes are needed this year.
The Bank of Canada is set to release its Business Outlook Survey and consumer expectations survey on Monday, offering fresh evidence on how firms and households are thinking about prices, wages and spending.
Money markets have swung between betting on a 25‑basis‑point and a 75‑basis‑point move later this year as the Iran conflict lifted oil and natural gas prices, feeding into gasoline and food costs.
Falling headline CPI below 2% helped cool inflation expectations and opened the door to rate cuts, while the Iran‑driven oil shock has complicated that path and forced the Bank to lean on judgment at its last 2.25% rate hold.
At the same time, business and CEO surveys have pointed to subdued sentiment, soft sales expectations and cautious investment plans, even as inflation pressures eased.
The central bank’s next rate decision on April 29 will arrive with inflation close to target but energy‑driven expectations in flux.
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