Bank of Canada governor downplayed new shocks but keeps 2026 rate moves open
Inflation pressures in Canada appears contained heading into 2026, even as Bank of Canada governor Tiff Macklem warned that global trade turmoil and a restructuring domestic economy would keep policy-makers on alert.
In a year‑end speech in Montreal, Macklem said the central bank’s benchmark rate at 2.25% is “at about the right level” to support a period of modest growth while keeping inflation near target.
He stressed that the Bank continues to judge underlying inflation “to be in the 2.5% range” and expects headline price growth to remain close to 2% over the next two years.
“Inflationary pressures continue to be contained despite added costs related to the reconfiguration of trade,” Macklem said in prepared remarks to the city’s chamber of commerce. “But so far, the economy is proving resilient overall.”
Recent data showed headline inflation running at 2.2% year over year in November, with core measures decelerating to 2.8%, their slowest pace since January.
The Bank targets 2% inflation, the midpoint of a 1% to 3% range, and has anchored its recent rate decisions around that goal.
Canada’s CPI held steady at 2.2% in November as core inflation cooled to 2.8%, easing pressure on the Bank of Canada after its recent hold at 2.25%.https://t.co/FjijrzkIVX
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 15, 2025
Still, Macklem acknowledged that the shock from hefty United States tariffs – in some cases up to 50% on sectors including steel, aluminum and autos – has weighed on Canadian manufacturers.
Food prices remain a sore point for households and lenders watching clients’ budgets. After Statistics Canada reported grocery inflation at 4.7% in November, driven by berries, beef and coffee, Macklem told reporters he expects coffee‑related pressures from US tariffs to unwind in the coming months, while high beef prices tied to smaller herds would take longer to settle.
“If you’re a family that’s already having difficulty putting food on the table, the fact that food price inflation might come down, that’s not the same thing as food prices coming down,” he said.
Economists are split on how the latest inflation figures might shape the 2026 rate path.
Some said the softer core reading should temper expectations for hikes in the second half of the year, while others pointed to an expanding share of basket items running above 2% and warned that sharply higher food costs could nudge consumers’ expectations upward.
Those uncertainties, together with unresolved trade tensions, mean the Bank is unlikely to offer a firm timeline for its next move.
The Bank appears comfortable keeping rates where they were, but both renewed trade disruptions and stickier‑than‑expected inflation could still shift the outlook – and with it, the trajectory for borrowing costs in 2026.
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