looking beyond the turmoil

The Bank of Canada maintained its trend-setting policy rate today at 2.25%, where it’s been since October of last year. The rate sits at the low end of the Bank’s theoretical neutral range of 2.25-3.25%.

The Bank currently faces a complex economic environment, characterized by a softening domestic economy and labour market, alongside the US-Iran conflict that has triggered a spike in energy prices and exerted upward pressure on inflation.

While Canada’s unemployment rate has dropped marginally so far this year, to 6.7% (from 6.8% at the end of 2025), the country has shed 94,600 jobs to-date in 2026. The unemployment rate has remained stable only because the labour force has, at the same time, contracted by 131,100 people, which has pushed the participation rate to its lowest level since 1997, excluding the pandemic era.

Prior to the war starting at the end of February, inflation in Canada had been within the Bank’s target range of 1-3% for more than two years, and as of February sat below the Bank’s target at 1.8%. Unsurprisingly, the rate of inflation in March was substantially higher, at 2.4%, driven entirely by higher oil and gas prices: WTI crude went from $67.02 USD on February 27th to around $100 USD for most of March, with the price of retail gas concurrently surging. Inflation is set to increase further in April, in part because oil and gas prices have continued to rise, but also due to the expiry of the impact that the removal of the consumer carbon tax in April 2025 has had on the Consumer Price Index over the past year. The Bank understands this, and will look beyond headline inflation to see how core measures are evolving.

In its release, the Bank noted that it expects the global benchmark price of oil to decline to $75 USD per barrel by mid-2027. It also observed that "based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon." While much will likely change before the middle of next year, these projections suggest that the Bank will maintain its policy rate for the foreseeable future. The next rate announcement is on June 10th.