Inflation risks are rising as oil shock lingers, Macklem says

Bank of Canada Governor Tiff Macklem said that inflation risks are rising as the effects of an oil price shock persist, signaling that the central bank sees upside pressure on price growth rather than a quick reversal. The transmission runs mainly through inflation expectations and the rate path: a persistent energy-driven rise in headline inflation can push markets to price fewer or later rate cuts, widening the gap between Canadian and U.S. policy expectations. Canadian dollar and short-dated Government of Canada bond yields are most sensitive to this repricing, while energy-linked equities gain from higher crude even as rate-sensitive sectors such as housing and utilities face pressure from higher discount rates. Traders should watch the next Canadian CPI release and any follow-up commentary from the Bank of Canada on whether core inflation measures are confirming the energy pass-through.

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