Bank of Canada Drives Rates Higher, When Canada Needs Lower

On October 28, the Bank of Canada increased its policy interest rate by one-quarter percentage point, to 2.5%. Commercial banks increased their lending rates in tandem, with their prime mortgage rates rising to 4.7% (and higher than that for credit cards and most other loans). Higher rates will slow down a national economy already staggering from the effects of the Canada-U.S. trade war and other shocks.

The Bank blamed a surge in inflation resulting from the latest global oil price shock, the result of U.S. President Donald Trump’s war in the Persian Gulf. Oil prices have stayed high for 8 months (despite Trump’s repeated promises the war would end soon). Given Canada’s policy of domestic petroleum prices to the world roller-coaster, this has caused dramatic increases in domestic gasoline, diesel, and fuel oil prices. The longer oil prices stay high, the greater will be the pass-through of higher energy costs into other parts of the economy. Some of this pass-through is already visible (in higher air fares, delivery charges, etc.). More is likely in coming months, as businesses in other industries pass on their own higher energy bills to customers through higher prices for everything from food to housing to services.

With the hike in interest rates (the first since 2023), Canadians will now pay twice for the current oil shock: first at the pumps, and now through higher interest rates. The Bank admits that Canada’s economy has excess capacity and too much unemployment, but it is lifting rates anyway. The real economy needs lower rates. But monetary policy is going the other way, to fight an external price shock that has no relation to domestic employment, growth, or production costs.

The Centre for Future Work’s False Profits research project has documented how much Canadians needlessly pay because of Trump’s war: $3 billion extra on gasoline alone in the second quarter of 2026, a toll which grows each week. Canada’s dependence on fossil fuels, and our policy (dating back to the 1980s) of mirroring the global oil roller coaster in our own petroleum prices (even for petroleum produced, refined, and consumed in Canada) are now the biggest threats to affordability and the cost of living in Canada.

The Bank of Canada expects the pass-through of oil prices into broader inflation will intensify in coming months (the same thing occurred in 2022-23, following the oil price shock resulting from Russia’s invasion of Ukraine). But the Bank’s only answer is to throw more Canadians out of work to offset inflation caused by global chaos and oil industry greed. This is deeply wrong.

Centre for Future Work Director Jim Stanford appeared on CTV News Channel to discuss the rate hike, its causes, and the inadequacy of current monetary policy (which fights any and all inflation, no matter what its causes, with contractionary rate hikes).

He argued that we need a broader understanding of the causes of inflation (which cannot always be blamed on ‘excess demand’) and a broader toolkit of responses. Preventing price shocks in the first place is vital. To that end, rethinking petroleum prices (the biggest culprit in recent inflation) is essential. Electricity prices in most parts of Canada have been very stable through the multiple economic disruptions of recent years, because they are regulated by provincial authorities on the basis of cost of production (rather than speculative futures markets). As a country which produces far more petroleum than it uses, Canada has the capacity to manage petroleum prices more stably and fairly.