Macklem Sees Sharply Higher Inflation Forecast
Macklem expects oil to push Canada's inflation forecast sharply higher. Energy income, the dollar and borrowing costs complicate the trade.
by Graham Ellery3 min read
Bank of Canada Governor Tiff Macklem expects a sharply higher inflation forecast this month because oil and petroleum prices remain elevated, according to Reuters's October 17 report. Speaking to journalists from Bangkok, he said curtailed shipments and damaged refining capacity had increased the risk of broader, more persistent inflation. Reuters did not report a revised forecast percentage. The new projections accompany the October 28 rate decision, which remains ahead of us.
Canada also receives income from the same shock. Bloomberg reported on October 17 that Macklem sees more evidence of higher oil prices supporting Canadian growth because Canada is a net energy exporter. The Canadian Press's account also records his warning that global resilience is under strain. For your Canadian energy holdings, we would weigh stronger selling prices against costs and financing. We traced the supply pressure behind those prices in EIA Raises Oil Forecasts as Inventories Fall.
Can stronger energy income coexist with tighter monetary policy? Macklem's test, reported by Reuters on October 17, is whether inflation returns toward the 2% target on its own or requires higher interest rates. He said the Bank was “prepared to adjust monetary policy as needed.” We take that as a conditional warning about persistent inflation. It gives you a reason to test an investment against higher borrowing costs before the Bank has made its decision, especially where returns depend on cheap refinancing.
If Canadian interest rates rise relative to those abroad, the Bank's explanation of monetary policy says the Canadian dollar may strengthen. For an energy producer receiving US dollars, a stronger loonie reduces the Canadian dollars earned on an unchanged US-dollar sale. You then need the producer's costs, hedges and debt terms before translating higher crude prices into cash flow. We would keep that exchange-rate exposure beside the oil-price assumption when assessing what an energy holding can earn.
For your gold holdings, higher inflation comes with competing forces. The World Gold Council's analysis of rates explains how higher yields increase the opportunity cost of holding gold, while inflation can offset that pressure. A Canadian investor holding unhedged bullion also faces the currency conversion: a stronger loonie reduces its Canadian-dollar value if US-dollar gold prices are unchanged. We would assess the inflation protection alongside the income available elsewhere and the currency exposure in your holding.
Next, we will check the October 19 business and consumer surveys, then the October 28 forecasts and rate decision for evidence of spreading price pressure and the Bank's response.
Seek the truth and be prepared,
Equedia News
Sources
- Reuters, Bank of Canada sees sharply higher inflation outlook as oil surges, Macklem says, October 17, 2026
- Bloomberg, Bank of Canada Says Higher Oil Prices Are Lifting Growth, Inflation Outlook, October 17, 2026
- The Canadian Press, Bank of Canada's Macklem warns global resilience under strain, October 17, 2026
- Bank of Canada, Understanding how monetary policy works, April 2021, accessed October 17, 2026
- World Gold Council, Investment Update: Rates pose risks but also unlock opportunities for gold, April 21, 2021
- Bank of Canada, 2026 schedule for policy interest rate announcements and other major publications, August 2025
- Equedia News, EIA Raises Oil Forecasts as Inventories Fall, October 6, 2026
Disclaimer: This letter is for informational and educational purposes only and does not constitute investment advice. Past predictions and performance are not indicative of future results. We own gold and gold stocks. Please see our full terms of use and disclaimer at equedia.com.
