Macklem Says Higher Oil Prices Lift Canada’s Growth but Push Up Inflation: What to Watch Before 28 October
The Bank of Canada governor expects a higher inflation forecast at the end of the month. What he said, what the Bank has actually announced so far, and what it means for a mortgage decision.
The short version
- On 17 October, Governor Tiff Macklem said he sees more evidence that higher oil prices are supporting Canadian growth and that he expects the Bank to publish a higher inflation forecast at the end of the month.
- Canada is a net energy exporter, so higher oil prices raise national income while also raising what households pay for fuel.
- The Bank’s next announcement is 28 October, with a Monetary Policy Report. Bloomberg, via Canadian Mortgage Trends, reported the odds of an increase at that meeting at over a third.
- The Bank’s overnight target is 2.25%. Nothing has been decided, and a mortgage choice should work whichever way it goes.
What the governor said
Speaking to reporters from the IMF and World Bank meetings in Bangkok on Saturday, Bank of Canada Governor Tiff Macklem said he is seeing more evidence that higher oil prices are supporting growth in Canada.
According to Bloomberg, carried by Canadian Mortgage Trends, Macklem said Canada is a net exporter of energy, unlike most other major economies, and that this produces “differential effects.” High gasoline prices take more out of consumer and business budgets, he said, but they also boost exports, incomes, government revenues and investment. “For the country as a whole, higher oil prices mean there is more income coming into the country from our exports,” he said.
He also said he expects the outlook for inflation to be higher when the Bank publishes its new forecast in its Monetary Policy Report later this month, and that there is “no resolution in sight” to the conflict in the Middle East.
The evidence he pointed to
The Bloomberg report lists what has changed since the Bank’s April view that the investment boost from energy prices would be limited. Corporate profits surged in the second quarter on higher energy revenues, Alberta is now expected to run a surplus instead of a deficit, and the federal government has announced a tax measure meant to bring forward business spending. All of that has happened alongside a trade-war escalation with the United States and slower population growth, which the report describes as headwinds.
It is worth keeping the two halves apart. Stronger growth is the Bank’s reason for seeing the economy as resilient. A higher inflation outlook is its reason for caution. Both can be true at once, and neither is a decision.
The question the Bank is asking itself
Macklem framed the choice plainly. The question the Bank will ask itself, he said, is whether “inflation is likely to come back down towards our target on its own,” or whether it will have to raise its benchmark to influence the path. The Bank has warned that it may need to raise its benchmark if energy prices stay elevated and policymakers see inflation pressure spreading from gasoline to other goods and services.
For context, the Bank’s overnight target stood at 2.25% in the Bank of Canada’s own data on 15 October, and the Government of Canada five-year bond yield, which fixed-mortgage pricing tends to follow, was 3.53% that day. Those are published figures, not a forecast, and both are charted on our Market Pulse page.
The dates that matter
The Bank’s published schedule has its next announcement on 28 October, which includes a Monetary Policy Report, and the last of the year on 9 December. Bloomberg reported that traders in overnight swaps put the odds of an increase on 28 October at over a third. That is market pricing at a point in time, not a statement from the Bank, and it can change with each inflation or jobs report.
It also means a decision that depends on a particular outcome is fragile. We looked at how that works for a variable mortgage in how many increases erase a variable discount, and at how bond markets have been moving fixed pricing in fixed versus variable this October.
What to do with this if you are buying or renewing
- Choose a structure you could carry in either direction. If a single announcement would strain your budget, the structure is too tight, whatever it costs today. Test your payment at today’s terms and at a higher setting in our mortgage calculators.
- If your term ends within about four months, start now. Lenders issue renewal offers well ahead of maturity, and starting early gives you time to compare. Our renewal page and the piece on the 120-day window explain the timeline.
- Do not wait for certainty. No announcement removes it. Pricing offers differ between lenders, and what each lender will do depends on your file.
- If you hold a variable or adjustable-payment mortgage, know your options before the date, not after. A structure that lets you adjust mid-term, such as the readvanceable approach on our RateShield Advance page, is worth discussing in advance.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
Quotations are from the Bloomberg report carried by Canadian Mortgage Trends and from the Bank of Canada’s published data. Market-pricing figures are as reported at the time and are not a forecast from the Bank. Nothing here predicts what the Bank of Canada or any lender will do. Everything here is general information only, illustrative, and subject to full qualification, lender approval and final terms.
Sources: Canadian Mortgage Trends (Bloomberg) — Macklem sees higher oil prices boosting growth, inflation · Bank of Canada — Schedule of announcements · Bank of Canada — Valet series data (overnight target and five-year bond yield)