Middle East War Pushes Canadian Inflation to 2.4% as Bank of Canada Holds Rate at 2.25%

Bank of Canada Governor Tiff Macklem told the House of Commons Standing Committee on Finance on May 4, 2026, that the policy interest rate was held at 2.25% last week, even as the Middle East war drives global energy prices sharply higher, disrupts shipping, and squeezes Canadian households through rising fuel and food costs. CPI inflation climbed from 1.8% in February to 2.4% in March, with inflation expected to peak around 3% in April before easing back to 2% by early 2027. Canada's economy is projected to grow 1.2% in 2026, 1.6% in 2027, and 1.7% in 2028, with the unemployment rate remaining in the 6.5%–7% range. Macklem warned that if oil prices remain elevated and energy costs spread to broader prices, the Bank may need to implement consecutive rate increases. Conversely, significant new U.S. trade restrictions on Canada could force rate cuts to support growth. The Bank's baseline assumes oil prices will fall and U.S. tariffs hold at current levels.