Bank of Canada Warns Economy Is More Shock-Prone
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Bank of Canada Governor Tiff Macklem is warning that Canada is operating in a more shock-prone global economy, as energy prices, geopolitical uncertainty and the upcoming review of the Canada-United States-Mexico trade agreement weigh on inflation, growth and interest-rate decisions.
In an interview with The Canadian Press, Macklem said he is “encouraged” by the federal government’s efforts to diversify the economy and protect it from increasingly common global trade shocks. Still, he warned that the current environment leaves the future path of interest rates less clear than usual.
His comments came after the Bank of Canada held its key policy rate at 2.25% for a fourth consecutive decision. The central bank said Canada is being affected by global events and higher energy prices, while reaffirming its commitment to bringing inflation back to the 2% target over time.
The key message is not only about a temporary jump in gasoline or oil prices. It is about a more fragile economic environment, where shocks in energy, trade or supply chains can quickly affect prices, growth and the decisions made by households and businesses.
Macklem pointed to two major risks around the outlook: the energy price shock linked to the war in Iran, and the upcoming review of the North American trade agreement. The Bank of Canada has also said higher gasoline prices and still-elevated food inflation are squeezing many Canadians.
For consumers, the warning means the next phase may not bring a simple direction for interest rates. If energy shocks turn into persistent inflation, the central bank may need to stay cautious. If trade uncertainty and weaker growth deepen, the bank may need to support the economy. In between, it may keep rates unchanged for longer.
Macklem’s broader point is that interest rates alone cannot manage structural changes such as trade protectionism, artificial intelligence disruption or weak investment caused by long project approval timelines. Those pressures require fiscal policy, productivity investment and stronger economic diversification.
For Canadians, the story matters because inflation is not fully behind them. Mortgage costs, loans, gasoline, food prices and business investment decisions all remain tied to how quickly the economy absorbs these shocks and how confidently the Bank of Canada can keep inflation under control.
