Bank of Canada Governor Macklem warns of potential rate hikes if inflation persists

The Bank of Canada kept its policy interest rate at 2.25% on September 2, 2026, extending a holding pattern that stretches back to December 2025. That’s seven consecutive meetings without a move. But Governor Tiff Macklem made clear this patience has limits: if inflation doesn’t cool, multiple rate increases could be on the table.

The inflation picture is getting complicated

Canada’s Consumer Price Index has been running near 3% in recent months. That’s a full percentage point above the Bank’s target, and the primary culprit is energy.

Geopolitical tensions around the Strait of Hormuz have sent gasoline prices climbing, dragging headline inflation higher. Core inflation measures, which strip out volatile items like fuel and food, were sitting at approximately 2% as of July 2026. That’s right where the Bank wants them.

Governor Macklem has been emphasizing the risk that temporary inflation spikes become entrenched. Once businesses and consumers start expecting higher prices, those expectations can become self-fulfilling.

Trade wars add another layer of risk

US tariffs on Canadian goods have introduced a second front in the inflation battle, and Canada has responded with counter-tariffs valued at approximately $27.6 billion.

Trade barriers work like a tax on both sides. Canadian exporters face reduced demand for their goods in the US, which drags on economic growth. At the same time, retaliatory tariffs push up prices on American imports coming into Canada, adding to inflationary pressure.

The Bank’s communication suggests it currently views the tradeoffs as roughly balanced. The 2.25% rate is described as appropriate for now, but the emphasis on readiness to act, including with consecutive increases, signals that inflation control remains the priority if forced to choose.

The next policy announcement is scheduled for October 28, 2026. Between now and then, the Bank will get fresh data on CPI, employment, and the real-world impact of trade disruptions.

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