Bank of Canada raises interest rate

The Bank of Canada increased its benchmark rate by 0.25 percentage points, reaching 2.5%, on Wednesday, marking its first rate hike in three years. The move aims to address concerns about inflation and the potential spread of high energy prices to other goods and services.

Energy prices remain elevated

Fuel prices in Canada have risen by 27.8% over one year, with Bank of Canada Governor Tiff Macklem stating during a press conference that energy prices have been high for eight months since the beginning of the Middle East conflict and are expected to remain so. This has contributed to inflation, which was around 3.1% in September and could reach "approximately 3.5%" by the end of the year, according to the central bank's forecasts.

Trade tensions with the U.S. persist

In parallel with the tensions in the Middle East, Canada is still involved in a trade conflict initiated by Donald Trump. Tensions between the two countries resurfaced in August when the Carney government withdrew from official trade negotiations, citing last-minute demands from the Americans. In response, Donald Trump imposed tariffs on billions of dollars worth of Canadian products, and Canada retaliated by imposing tariffs on American products.

Economic impact of tariffs

The central bank warned that "with the new American tariffs, growth should slow in the fourth quarter of 2026, before resuming in 2027." The institution does not rule out further rate increases in the coming months and must announce its next decision on December 9. Andrew Grantham, an economist at the CIBC bank, estimates "that the Bank will maintain its rate in December before increasing it again in January."