BoC's Macklem flags concern over sticky fuel margins, inflation outlook

Bank of Canada Governor Tiff Macklem offered a series of remarks that touched on inflation, growth and monetary policy.

• It could take some time for higher fuel margins to normalize; that is a worry
• That is a worry because that will add persistence to headline inflation
• Have cut Q4 annualized growth forecast to 0.75%
• Expect inflation to drift up a little higher in coming months
• Key thing we’re going to be looking at is our inflation forecast
• Question is, is the current rate the right one or do we need to raise it?
• If we were too slow to raise ratess, we'd have to raise them a very quickly, and raise them more than we had moved earlier 

Earlier today, Macklem warned that new US tariffs could weigh on Canadian investment and hiring. He also highlighted the competing forces facing the Bank of Canada: weaker economic growth could reduce inflation pressure, while the Middle East conflict and oil prices near $100 per barrel could push inflation higher. Canada’s economy expanded at a 3.3% annualized pace in the second quarter, but the fourth-quarter growth forecast has now been lowered to 0.75%.

Analysis: The overall message is mixed on the economy but leans hawkish on monetary policy. Macklem acknowledges that tariffs and uncertainty are creating downside risks for growth. However, the Bank of Canada cannot ignore inflation, especially if elevated energy prices and wider fuel margins prove more persistent than expected.

For traders, the most important comment is Macklem openly questioning whether the current policy rate is appropriate or needs to be raised. That does not guarantee a rate hike, but it keeps tightening firmly on the table. The inflation data—and whether higher fuel costs spread into broader prices—will be the key determinant.

Nevertheless, the USDCAD has extended to a new high in the currently hourly bar.