U.S. Federal Reserve, Bank of Canada keep key interest rates unchanged amid oil-driven inflation risks

Open this photo in gallery:

03/18/26 15:35

What’s next?

- Mark Rendell

• The next Bank of Canada interest rate announcement is on April 29. The bank will also publish a new forecast for economic growth and inflation in its quarterly Monetary Policy Report.
• The U.S. Federal Reserve delivered its latest rate decision at 2 p.m. ET today, keeping the federal funds target range steady at 3.5 - 3.75 per cent.
• The Bank of Japan, Bank of England and European Central Bank have rate announcements on Thursday. All three are expected to leave their policy rates unchanged.
• Statistics Canada will release January GDP numbers on March 31. The March labour force survey numbers will be published on April 10, and the March inflation numbers will be out on April 20.

03/18/26 14:28

Wall Street remains lower after Fed keeps rates unchanged

Wall Street traded lower on Wednesday after the Federal Reserve held U.S. interest rates steady and projected only a single rate cut for the year as officials took stock of economic risks from the U.S. and Israeli war with Iran.

New projections from U.S. central bank policymakers showed the Fed’s benchmark overnight interest rate would fall by just a quarter of a percentage point by the end of this year, with no hint of timing.

Major stock indexes maintained their declines from before the Fed’s announcement. Economists had not expected the Fed to change its interest rate.

The S&P 500 was down 0.65 per cent at 6,672.2 points. The Nasdaq declined 0.63 per cent to 22,337.54 points, while the Dow Jones Industrial Average was down 0.90 per cent at 46,570.15 points.

New rate and economic projections showed the Fed largely viewing the recent surge in oil prices as having a temporary effect on inflation, with policymakers still expecting to lower rates this year and anticipating inflation to be 2.2 per cent by the end of 2027, near the central bank’s 2 per cent target.

“The Federal Reserve left interest rates unchanged and made relatively minor changes in its policy statement, suggesting that officials plan to follow long-standing monetary policy orthodoxy in ’looking through’ the energy price shock now rolling across the global economy,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

– Reuters

03/18/26 14:05

U.S. Federal Reserve holds rates steady, projects single rate cut for 2026

Open this photo in gallery:

The Federal Reserve held interest rates steady on Wednesday and projected higher inflation, steady unemployment and only a single rate cut for the year as officials took stock of economic risks from the U.S. and Israeli war with Iran.

New projections from U.S. central bank policymakers showed the Fed’s benchmark overnight interest rate would fall by just a quarter of a percentage point by the end of this year, with no hint of the timing of such a move. That view was unchanged from previous projections and remains out of step with President Donald Trump’s demand for a sharp drop in borrowing costs.

Inflation, as measured by the Fed’s preferred gauge, was expected to end the year at 2.7 per cent, not far below its current rate and higher than the 2.4 per cent projected in December, possible fallout from the spike in global oil prices that followed the start of the bombing campaign against Iran.

“Implications of developments in the Middle East for the U.S. economy are uncertain,” the Fed said in a policy statement that also noted ongoing stable unemployment.

The new rate and economic projections showed the Fed, for now, largely looking through the oil shock, with policymakers still expecting to lower rates this year and anticipating inflation to be 2.2 per cent by the end of 2027, near the central bank’s 2 per cent target.

Notably, no policymakers saw rates needing to move higher by the end of this year, though one official anticipated a rate increase in 2027.

Economic growth was upgraded slightly, to 2.4 per cent for 2026 versus 2.3 per cent in December, and the unemployment rate projection was unchanged at 4.4 per cent.

Fed Governor Stephen Miran continued his string of dissents, voting against the decision to maintain the policy rate in the current 3.50 per cent-3.75 per cent range in favour of a rate cut.

The decision to hold the policy rate steady was widely expected in financial markets, but the projections provide fresh information about how the U.S. central bank is assessing the economic impact of a war that has disrupted global oil markets.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET to elaborate on the outcome of the meeting.

Read the full story here.

– Reuters

03/18/26 12:30

Opinion: Uncertainty reigns for Bank of Canada as Iran war rages

– Jeremy Kronick and Steve Ambler

Open this photo in gallery:

After five straight months of inflation above 2 per cent, elevated food inflation, and now oil and gas prices, which have experienced huge jumps since the war in Iran began, the Bank of Canada held its policy interest rate at 2.25 per cent. It was the right call.

This does not mean that the Bank of Canada will continue to leave the policy rate unchanged. As it looks ahead, it will have to weigh a number of demand- and supply-side factors, judge how long each effect is likely to last – in other words, what it can look through and what it cannot – and assess the impact on inflation expectations. Two factors stand out: the duration of the war in Iran and the outcome of the review of the United States-Mexico-Canada agreement. Both are littered with uncertainty.

Read the full column here.

03/18/26 11:45

A rate hold might calm the housing market, but war in the Middle East could keep buyers on the sidelines

– Salmaan Farooqui

Open this photo in gallery:

The Bank of Canada’s third rate hold in a row will send a message of stability and predictability for buyers who have been waiting on the sidelines of Canada’s sluggish housing market, says Coldwell Banker Canada chief executive Karim Kennedy.

A rate hold will also be welcome news for holders of variable-rate mortgages, whose interest rates fluctuate with each BoC decision.

But on the other hand, Mr. Kennedy said an evolving conflict in the Middle East will make buyers nervous to make a real estate purchase, especially in expensive markets like Toronto and Vancouver.

A drawn-out war in Iran - and the inflationary risk from the halting of oil trade through the Strait of Hormuz - is adding to existing economic concerns around Canada’s trade dispute with the U.S.

For months, real estate analysts have said that these economic factors are weighing on consumer confidence and have been the main factor preventing Ontario and B.C. markets from bouncing back, even as interest rates came down in the past two years.

Inflationary pressure on oil and other sectors could also force the Bank of Canada to increase interest rates down the road. Financial markets have already priced in expectations that the BoC will hike by the end of the year.

For now, Mr. Kennedy said it’s too soon for concerns about rate hikes to be on the minds of consumers.

Meanwhile, the bond market has reacted immediately to the conflict in the Middle East, and the Canada five-year bond yield spiked last week to its highest level since July, 2025.

Mortgage lenders set their fixed mortgage rates based on bond yields, and Rates.ca mortgage specialist Victor Tran said lenders have already increased their rates by 10 to 15 basis points on long-term fixed-rate mortgages, and that further hikes are in store if the conflict continues.

03/18/26 11:35

David Rosenberg says markets have got it wrong, thinks next BoC move will be a cut

– Darcy Keith

Money markets are pricing in a near certainty that the Bank of Canada will keep its overnight rate unchanged at its April 29 policy decision and raise that trend-setting interest rate later this year amid inflationary pressures arising from oil’s spike.

Economist David Rosenberg thinks traders have got it wrong. Here’s his reaction to today’s decision, in a note issued to his clients.

“The tone of the press statement indicates that the next move, if any, will be a cut. The Bank acknowledged that ‘inflation risks have gone up due to higher energy prices,’ but it must know that with the labour market softening dramatically of late, any spillover to the core measures of the CPI will be well contained.

What is more important are the implications for the Canadian economy, and the transparency was blunt, to say the least: “We continue to expect the Canadian economy to grow modestly as it adjusts to U.S. tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January. The labour market remains soft. Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7 per cent in February. Looking through the volatility, recent data also suggest ongoing weakness in exports. It’s too early to assess the impact of the conflict in the Middle East on growth in Canada,” the Bank of Canada’s latest interest rate decision said.

It may indeed be “too early” to assess the risks to the macro landscape, but seeing as the Canadian economy is largely a torque on global growth, consider these risks to be squarely to the downside.

Tack on the admission that inflation heading into the Iran war was hardly an impediment to more policy easing: “CPI inflation eased further to 1.8 per cent in February, down from 2.3 per cent in January. CPI inflation excluding changes in indirect taxes as well as core inflation measures have also come down and are all close to 2 per cent.”

The forward guidance was not changed, with the statement signalling that “as the outlook evolves, we stand ready to respond as needed.” There is no chance that the response will be a move to tighten, the question is just how much more easing there is left in the tank. Any inflation from food and energy will merely be hitting a wall in the ever-weakening labour market.

03/18/26 11:27

TSX tumbles as miners lead broad declines

Canada’s main stock index was set for its biggest single-day drop in more than a week on Wednesday, weighed down by a sharp drop in mining shares, while investors assessed the Bank of Canada’s latest comments and awaited the U.S. Federal Reserve’s policy decision.

At 11:12 a.m. ET, the S&P/TSX Composite Index was down 1.2 per cent at 32,539.07 points.

“With Canada shedding jobs in February, a housing market losing steam and global energy prices firming on the back of renewed geopolitical conflict, policy makers simply don’t have the clarity needed to act,” said Michael Constantino, CEO of Webull Canada.

Investors now await the Fed’s policy decision and comments, expected at 2 p.m. ET on Wednesday.

The TSX’s materials index, which houses metal miners, fell 4.5 per cent as precious metal prices dropped, briefly touching its lowest level since January 8.

– Reuters

03/18/26 11:23

Macklem on economic weakness

- Mark Rendell

“Since we published our January report … We’ve seen more job losses, really largely reversed the job gains you saw through the fall … Looking through the noise, exports look soft. The housing market remains weak … If you didn’t have inflationary pressures, I expect we would be talking about lower rates. But we’re operating in a world where there’s more than one thing going on. We’re now facing increased inflation risks, and those two things go in opposite directions for monetary policy.”

03/18/26 11:18

Rogers on the housing market, says house prices need to come down

- Mark Rendell

“The housing market is looking weaker and weaker than we had incorporated into our January outlook. So that’s something we’ll be looking at certainly when we prepare the April outlook. Some of the more recent data coming out in early March looks like we might see a bit of a rebound, but it’s probably too early to tell. So, definitely we need to take another look at the housing market. What I would say about prices is … we need house prices to come down so that housing is more affordable. We’ve all been worried about how fast house prices went up in recent years, and now we’re worried about how they’re coming down. We do need them to settle down a bit for housing to get more affordable. There isn’t really a path to affordability, particularly in some of our big centres, without house prices correcting a bit. So we will watch that.”

03/18/26 11:03

Macklem says BoC could adjust rates as needed

- Mark Rendell

“We could keep holding the interest rate where we are. But look, if energy prices stay high, and we start to see evidence that is generalizing and becoming more persistent, we can raise the policy interest rate to cool inflation. On the other hand, if energy prices come back down, we see more weakness in the economy, we can lower our policy rate to add more support. The message is, there’s a lot of uncertainty there. We’ll be following those developments carefully and we’ll respond as needed.”

03/18/26 11:00

Rogers on supply shocks

– Matt Lundy

“We’re getting better at assessing supply shocks. … One really important thing to keep in mind is what’s the starting point when you go into a supply shock. When we went into the supply shock coming out of the pandemic, the economy was overheated. That made it easy for price increases to get passed on, but they were coming from a supply shock. We’re not in that same situation now. So that’s something we have our mind on, too. What’s our starting point going into the supply shock?”

03/18/26 10:58

Macklem on what the BoC is looking for to assess whether inflation is spreading

- Mark Rendell

“What will we be watching? Obviously, you look at total CPI, that’s our target. Does that initial increase look like it’s persisting? Core measures of inflation are very helpful. Core measures will tend to strip out volatile components like energy. So they’ll give you an idea of what’s happening to everything else. Is it spreading? If you start to see Core moving up a lot, that’s a sign that it’s spreading. We can also look at the whole distribution of price changes. Is it just a few components of the CPI that are driving inflation up? Or is it many components? The more components, the more worried we will be getting, and importantly we’ll be looking at inflation expectations.”

03/18/26 10:56

Macklem on how the BoC is thinking about inflation risks

- Mark Rendell

“This is an economic shock. How big it is is going to depend a lot on how long it lasts, whether it widens, how disruptive it is. Here in Canada, we are starting from a position where inflation is 2 per cent, it’s actually been close to 2 per cent for more than a year. Our measures of core have been decelerating, and the economy is in excess supply. So what that tells us is that you know the risk that higher energy prices are going to quickly spread to other goods and services. That looks contained, that doesn’t look too high so we’ve got some time. So it made sense to hold today.”

“We know inflation is going to go up in the near term. We’ve all filled up our gas, we’ve all filled up our car. We’ve seen the prices at the pump that’s going to show up in March CPI. The issue for us is not really the immediate increase in inflation. We know that’s going to happen. It’s, does that start to get generalized, start to spread, start to look more persistent? That’s certainly what we’re going to be looking for closely.

“The other thing, though we’re continuing to look at and assess, is the impact of higher tariffs on the economy, the impact of trade uncertainty, the structural change in the Canadian economy is going through. Higher tariffs weaken the Canadian economy. That will put some downward pressure on inflation. So, you know, we’ve got to look at the whole situation. We’ve got to look at how the risks evolve. And you know, we’ll take it one meeting at a time.”

03/18/26 10:54

Carolyn Rogers on food inflation

– Matt Lundy

“We’re starting from a position where food inflation continues to outpace headline inflation a bit. It’s certainly adding to that sense of affordability that Canadians are feeling. Energy shocks can affect food prices. And again, it comes back to the previous question. It really depends a lot on duration.

We import a lot of our fresh foods. So transportation costs add to food costs.

There’s inputs to fertilizer costs that are being affected by the war in Iran, so if that persists, that could have a longer-term effect on food inflation too.”

03/18/26 10:50

Tiff Macklem on oil prices

– Matt Lundy

“There are multiple effects of higher oil prices on the Canadian economy. … It depends, very importantly, on the duration. So I checked the screen before I came down. WTI was US$98, $99 [a barrel]. If oil prices stay high for an extended period, that does mean that the income coming into the country from our exports of oil – we are a net exporter of oil and natural gas – those incomes will be higher. That will tend to support the economy. The other side, of course, is that for consumers, and most other businesses, higher oil prices are going to squeeze them.”

03/18/26 10:48

Economists react to BoC hold

– Matt Lundy

Here’s how economists reacted on Wednesday in notes to clients.

Bank of Montreal chief economist Doug Porter

“Like all central banks, the conflict in Iran has put the BoC in a tough spot, with growth risks tilted to the downside, while inflation risks have mounted. The Bank suggests it’s still too early to properly assess the net impact on the Canadian economy. Policy is thus on hold until there’s more information on the duration and extent of the energy price shock. It’s also abundantly clear that the BoC was more concerned about the outlook prior to the war, and would have been even more dovish in today’s statement were it not for the spike in oil prices.”

Royce Mendes, head of macro strategy at Desjardins Securities

“Overall, it’s difficult to have much confidence about how the economy and inflation evolve. Markets haven’t moved all that much on the rate announcement, with implied pricing still pointing toward one hike for this year. That said, the tone of these communications reinforces our view that the Bank of Canada is willing to look through the impacts of higher energy prices on CPI so long as the conflict doesn’t last for too long. As a result, we continue to expect officials will leave the policy rate unchanged for the duration of this year.”

Bradley Saunders, North America economist at Capital Economics

“Ultimately, much is resting on two highly uncertain events: the Iran war and the CUSMA renegotiation. Should President Trump continue in his struggles to unblock the Strait of Hormuz and oil prices rise further and remain above $100 per barrel for months, the risk of a broader resurgence in price pressures would be palpable, prompting the Bank to bring rate hikes forward. However, should the U.S. suddenly withdraw from CUSMA at some point in the coming months, the blow to exports and business investment would surely lead some policymakers to call for cuts into accommodative territory. As Macklem keeps reminding us, the range of potential outcomes is wider than at any time in recent years. At the margin, though, today’s decision supports our view that the Bank will not seriously consider tightening policy until early next year.”

03/18/26 10:45

Money markets suggest BoC rate hike by end of 2026

– Darcy Keith

Money markets still have little doubt that the Bank of Canada will be forced into hiking interest rates by the end of this year.

Implied interest rate probabilities in overnight index swaps suggest the Bank of Canada’s overnight rate will be at 2.494 per cent by this December, according to Bloomberg data. The Bank of Canada’s current overnight rate is 2.25 per cent. That implies the market is nearly fully pricing in a quarter-point rate hike by the end of this year.

Markets are currently priced for about 50-per-cent odds of a rate hike by this September. Traders widely expect another hold decision next month.

While the bank only moves the overnight rate in quarter-point increments, markets price in a much less rigid rate when setting bets on future policy rates.

Pricing in money markets has been volatile after this morning’s decision by the bank to keep rates steady. But overall, traders are largely keeping to the same bets for the trajectory of interest rates this year.

The Canadian dollar moved modestly lower after the rate decision, but is within the day’s range.

Canada’s two-year bond yield, sensitive to policy moves, is up about four basis points. But that’s largely following the influence of U.S. markets this morning, where Treasury yields rose across the curve on a surprisingly high reading for the producer price index.

03/18/26 10:42

Chief economist at CIBC Capital Markets on today’s BoC decision

– Darcy Keith

Avery Shenfeld, chief economist at CIBC Capital Markets, on today’s Bank of Canada decision:

“Its decision to keep interest rates unchanged came as no surprise to markets given the cross currents of a weak labour market, decelerating core inflation, but the threat of an energy shock to inflation ahead. The Bank still expects modest growth ahead, but weaker than it had previously expected in the near term, with ‘risks to growth tilted to the downside’ but, on the other hand, with inflation risks having gone up due to the war. It wasn’t due to make a new forecast, so it opted not to deliver one, and in the end, stayed neutral by saying that it is ‘ready to respond as needed’ but giving no signal on which direction such a response might take.”

“In the opening statement for the press conference, it put a bit more emphasis on the some of the downside implications for growth from higher energy prices than on the boost to income from energy exports, citing financial conditions tightening and the squeeze on consumers. Still, it gave no indication that there was any debate on either cutting or hiking at this point, in line with its perspective that the implications of the energy price shock will depend critically on how long it persists, which simply is unknowable at this point.”

Read the latest on today’s markets here.

03/18/26 10:38

Analysis: Bank of Canada is being pulled in opposing directions

- Matt Lundy

The Bank of Canada is being tugged in opposing directions.

On one side, the central bank is contending with sluggish growth prospects as Canada adjusts to erratic U.S. trade policies – and the uncertain future of the North American trade pact – that have delivered lasting damage to the economy. With such a bleak outlook, you could make a case for rate cuts.

On the other hand, energy prices have surged because of the Middle East war and the tightening of oil shipments through the critical Strait of Hormuz. With Canadians already feeling the pain at the pumps – and memories of four-decade-high inflation so fresh – you could argue that rate hikes are appropriate, should the conflict lead to sustained inflation.

“Governing Council will look through the war’s immediate impact on inflation but if energy prices stay high, we will not let their effects broaden and become persistent inflation,” Bank of Canada Governor Tiff Macklem said Wednesday in his opening remarks.

So effectively, the path for Canadian interest rates – and whether the next move is a hike or cut – hinges to a great deal on one man. Yeah, you guessed it: Donald Trump.

Once again, Mr. Macklem’s statement was chock full of mentions of uncertainty. That was the case before the U.S. and Israel began strikes on Iran, and that will remain the case while Mr. Trump is in the White House.

For now, the Bank of Canada is standing pat on interest rates, and economists expect that to be the case for a while. Still, investors in the swaps market are leaning toward a rate hike by the end of the year, a view that pre-dated the war. Some economists on Bay Street agree with that.

But there are others, still, who think that any move from the current 2.25 per cent policy rate would be lower. The trade outlook is hardly encouraging.

Where does that leave borrowers? Well, it’s unlikely that rates will move that much in either direction. Absent the recent increase in energy prices, inflation was calm. And should the conflict simmer, that would help with price stability.

Meantime, domestic demand has been fairly healthy, despite all the economic headwinds. Not much reason to slash rates either.

03/18/26 10:30

Key quotes from Tiff Macklem’s press conference opening statement

- Mark Rendell

How the BoC is thinking about the energy price shock

“With inflation close to target and the economy in excess supply, the risk that higher energy prices quickly spread to the prices of other goods and services looks contained. But the longer this conflict lasts and the wider it gets, the bigger the risks. Governing Council will look through the war’s immediate impact on inflation but if energy prices stay high, we will not let their effects broaden and become persistent inflation. At our meeting this week, we decided to maintain the policy rate at 2.25 per cent. As the outlook evolves, we stand ready to respond as needed.”

Too early to assess the impact of the Middle East war on Canada

“It is too early to assess the impact of the war on growth in Canada. If higher oil prices are maintained, this will boost income from energy exports. At the same time, higher oil prices squeeze consumers, leaving them with less income for other spending. Beyond the jump in energy prices, the war in Iran will affect households and businesses in other ways. Financial conditions have already tightened: global bond yields are higher, stock markets are lower, and credit spreads are wider. Transportation bottlenecks caused by the effective closure of the Strait of Hormuz could also impact supplies of other commodities, such as fertilizer.”

The stagflation dilemma

“Economic weakness combined with rising inflation is a dilemma for central banks. Raising interest rates to slow inflation could further weaken the economy. Easing interest rates to support growth risks pushing inflation well above target. Canada’s outlook is further complicated by structural change — shifting trade relationships, the adoption of AI, and changes in demographics.”

State of the Canadian economy

“Recent data show the Canadian economy remains in excess supply and is growing slowly as it adjusts to U.S. tariffs and uncertainty. After growing 2.4 per cent in the third quarter of last year, GDP shrank by 0.6 per cent in the fourth quarter. This was weaker than we forecast at the time of the January [Monetary Policy Report], but that was mainly because inventories were drawn down by more than we expected. Domestic demand grew by 2.4 per cent because of strength in consumer and government spending, while housing was weak.

Data received for early 2026 suggest the economy is expanding again, but at a slower pace than we had forecast in January. The labour market remains soft. The job gains we saw late last year were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7 per cent in February. Recent trade data have been volatile but they suggest ongoing weakness in exports.”

What’s happening to inflation

“Inflation eased further to 1.8 per cent in February, down from 2.3 per cent in January. CPI inflation excluding taxes and measures of core inflation have also come down and are all now close to 2 per cent. Food inflation slowed in February but is still elevated. The recent sharp increase in global energy prices is causing higher prices at the pump, which will push up inflation in the coming months.”

03/18/26 09:50

Bank of Canada keeps policy rate unchanged at 2.25 per cent

- Mark Rendell

The Bank of Canada held its benchmark interest rate steady on Wednesday but said it’s prepared to adjust monetary policy if needed amid a global oil price shock that risks reigniting inflation.

As widely expected, the central bank’s governing council kept the policy rate at 2.25 per cent for the third consecutive time.

The rate decision was made against the backdrop of a sharp rise in energy prices caused by the war between the United States, Israel and Iran, which has largely closed the Strait of Hormuz through which around a fifth of global oil supplies typically travel.

Benchmark oil prices have risen more than 40 per cent in recent weeks, and the average price of gasoline in Canada has jumped more than 30 cents a litre. This will push up the rate of inflation in Canada in the coming months.

“Governing council will look through the war’s immediate impact on inflation but if energy prices stay high, we will not let their effects broaden and become persistent inflation,” said Governor Tiff Macklem, according to the prepared text of his press conference opening statement.

“As the outlook evolves, we stand ready to respond as needed,” he said.

Before the outbreak of the war, the Bank of Canada was widely expected to remain on hold through 2026. Financial markets are now pricing in the possibility of a rate hike in the back half of the year.

Read more about today’s Bank of Canada decision.

03/18/26 09:35

TSX, Wall Street open lower

Canada’s main stock index opened lower on Wednesday, pressured by broad declines as oil prices rose, while investors awaited interest rate decisions from the Bank of Canada and the U.S. Federal Reserve.

At 09:30 a.m. ET, the S&P/TSX composite index was down 0.9 per cent at 32,626.16 points.

Wall Street’s main indexes also opened lower after data showed producer prices rose more than expected in February, prompting investors to price out any expectations for an interest rate cut by the Federal Reserve this year.

The Dow Jones Industrial Average fell 79.3 points, or 0.17 per cent, at the open to 46,913.93. The S&P 500 fell 18.9 points, or 0.28 per cent, to 6,697.16, while the Nasdaq Composite dropped 57.6 points, or 0.26 per cent, to 22,421.962.

Read the latest updates from the stock market.

– Reuters

03/18/26 09:00

Canada’s inflation rate eased to 1.8% in February before oil prices surged

Open this photo in gallery:

Canada’s annual inflation rate showed signs of easing in February but economists warn price relief will be short-lived as the war in the Middle East fuels surging energy costs.

Statistics Canada said Monday that February’s inflation reading came in at 1.8 per cent year-over-year, half a percentage point lower than January’s figures and just under economists’ expectations for the month.

The main factor driving the headline number lower was the end of last year’s tax holiday, which saw the federal sales tax taken off a variety of household staples, gifts and dining out for a two-month period ending mid-February, 2025.

Statscan said the cost of gasoline started to creep higher at the end of February in the lead-up to the war in the Middle East, which has pushed prices at the pump sharply higher in recent weeks.

Iran has responded to the United States’ and Israel’s bombing campaign by blockading the Strait of Hormuz, bottlenecking a critical channel for global oil supply.

TD senior economist Leslie Preston said in a note to clients Monday that she expects the headline inflation figure will rise to around 3 per cent in the months ahead because of the oil-price shock.

Read the full story here.

– The Canadian Press

03/18/26 08:30

Middle East war driving up energy prices, with little relief in sight

- Mark Rendell

Open this photo in gallery:

The closure of the Strait of Hormuz, through which around a fifth of global oil supplies typically travel, has raised energy prices dramatically in recent weeks.

A barrel of Brent crude cost US$103 on Tuesday, up from US$77 at the beginning of March. A barrel of West Texas Intermediate cost US$96, up from US$71 at the start of the month.

While most Middle Eastern oil is destined for refineries in Asia and Europe, the disruption in global energy supplies is showing up at gas pumps in North America.

Gasoline cost an average of $1.65 per litre in Canada on Tuesday, according to CAA’s national price tracker, up from $1.32 a month ago. In the United States, gas prices have risen more than 80 cents over the past month, reaching US$3.79 per gallon on Tuesday, according to the AAA.

Where energy prices go from here depends heavily on the length of the U.S.-Iran conflict, as well as how much damage is done to oil production facilities in the region. Refineries in Asia are still taking in shipments of oil from tankers that passed through the Strait of Hormuz before the outbreak of the war. But energy analysts expect these refineries to start facing shortages in the coming weeks if the strait is not significantly reopened to shipping.

The United States and other countries have taken steps to dampen the oil price shock. Thirty-two countries have agreed to release a combined 400 million barrels of oil from strategic reserves. The U.S. has reversed its opposition to India buying oil from Russia, and Iran is reportedly letting some countries move tankers through the strait without harassment.

Ultimately though, prices are unlikely to fall much while the war continues, analysts say. And the longer the conflict continues, the greater the risk there could be another move up in oil prices, with some warning a US$200 barrel of crude is not out of the question.

03/18/26 08:00

Central banks around the world expected to deliver a batch of hawkish holds

- Mark Rendell

Open this photo in gallery:

Beyond Ottawa, it’s a busy week for central banks around the world.

The U.S. Federal Reserve will deliver its latest interest rate decision at 2 p.m. ET today, followed by a press conference by Fed chair Jerome Powell at 2:30 p.m. ET.

The Bank of Japan, Bank of England and European Central Bank all have interest rate announcements on Thursday.

With the exception of the Reserve Bank of Australia, which raised its benchmark rate on Tuesday, financial markets expect central banks to remain on hold this week. But analysts are looking for policy makers to strike a hawkish tone as they grapple with the rise in global oil prices, which risks producing the painful combination of high inflation and slow economic growth, known as stagflation.

The war in the Middle East has led to a broad shift in expectations for monetary policy in 2026.

Predictions of another cut by the Fed have been pushed to the back half of the year. That’s despite Kevin Warsh, the incoming Fed chair who is expected to be more open to U.S. President Donald Trump’s calls for lower interest rates, taking over in May. Likewise, traders have shifted their calls for another Bank of England cut from this week to the middle of the year.

The oil price shock is hitting countries differently, with varying implications for monetary policy. For oil importers, it’s a stagflation shock, squeezing economic growth while also pushing up prices.

For oil exporters, such as Canada or the United States, higher energy prices tend to be a net positive for GDP growth. But a lot depends on how high energy prices go and how long they remain there. Energy companies and governments in energy-producing regions need oil prices to stay elevated for an extended period before they change their investment or spending plans. In the meantime, the sticker shock at the gas pump leaves consumers with less disposable income.

03/18/26 07:00

Bank of Canada expected to hold rate at 2.25 per cent amid oil price shock

- Mark Rendell

Open this photo in gallery:

The Bank of Canada is expected to look through the surge in global oil prices and leave interest rates unchanged today. But analysts anticipate Governor Tiff Macklem to strike a more hawkish tone in his press conference this morning, signalling that the bank is willing to respond if the energy price shock caused by the war in the Middle East stokes broader inflationary pressures.

After lowering its benchmark interest rate nine times in 2024 and 2025, the central bank has been on hold since December. At 2.25 per cent, the policy rate is in a neutral, or slightly stimulative setting, which Mr. Macklem has said is appropriate for an environment of slow economic growth and mild inflation in Canada.

The oil price shock, caused by the U.S.-Iran war and the disruption of oil shipments through the Strait of Hormuz, has complicated things for the Bank of Canada and other central banks around the world.

Global oil prices are up more than 40 per cent over the past two-and-a-half weeks. And there are concerns that the energy price shock could push up other prices and raise household and business inflation expectations, particularly if the conflict extends through March and into April.

Central banks tend to look through this type of commodity price shock when setting monetary policy. But having let inflation get out of control in 2021 and 2022, central bankers are more sensitive today about the potential for supply-side shocks to become entrenched in a broader inflationary process.

The economic backdrop in Canada remains weak. GDP contracted in the fourth quarter of 2025. Canada shed 84,000 jobs in February and the unemployment rate jumped to 6.7 per cent. The country’s trade deficit widened in January, while uncertainty about the future of the North American free-trade pact continues to weigh on business investment.

All this points to an extended hold from the Bank of Canada, perhaps even additional rate cuts. But the oil price shock is pushing monetary policy in the other direction. Mr. Macklem and his team will be walking that tightrope this morning.

Read more about today’s expected Bank of Canada decision.