(March 27): Economists are boosting their forecasts for Canadian inflation and unemployment as the war in Iran drives up oil prices and heightens global instability.
Analysts in a Bloomberg survey see the consumer price index rising at a 2.4% annual pace this year, up from 2.2% in last month’s survey. Unemployment is expected to average 6.7% in 2026, compared with 6.5% previously, while the economy is seen expanding 1.1%, down from 1.2%.
The combination of accelerating inflation, elevated unemployment and weak growth point to mounting stagflationary risks. Last week, Bank of Canada governor Tiff Macklem called that situation a “dilemma” because both raising and lowering interest rates carry risks.
In the survey, the median expectation is for the central bank to hold borrowing costs steady throughout 2026, with hikes starting in the second quarter of 2027. That outlook is increasingly divergent from markets — traders in overnight swaps see at least 50 basis points of hikes by the bank’s October meeting.
Economists see investment rising 0.8% in 2026, down from 1.3% previously. The survey of 33 economists was conducted between March 20 and 25.
Officials have held the policy rate at 2.25% since October of last year, including at their decision last week. Before oil prices jumped, the bank had been squarely focused on the structural damage posed by the US tariff dispute, saying it believed rates were at about the right level to help the economy transition while keeping a lid on inflationary pressures.
See also: Spanish prices rise at fastest pace since 2024 on Iran war
On Thursday, senior deputy governor Carolyn Rogers said the central bank needs to “guard against” higher petroleum costs spreading to other goods and services and becoming “ongoing, persistent inflation”.
At the same time, Macklem has said he’d look through the near-term spike in oil prices and has emphasised the downside risks facing the economy. In a dovish set of communications, Macklem also said the central bank “would be talking about lower rates” if growth continued to deteriorate — absent the upside risk of higher energy costs.
The Bank of Canada next sets rates on April 29.
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