Bank of Canada Governor Macklem says inflation poised to ease gradually with oil price decline

Bank of Canada Governor Tiff Macklem is making one thing very clear: the inflation spike Canadians are feeling at the gas pump is not the same beast as the broad-based price surges that haunted the economy in 2022 and 2023. The culprit this time is oil, and Macklem believes the worst of it is temporary.

Canada’s headline inflation hit 3.2% year-over-year in May 2026, its highest reading since late 2023. But Macklem, speaking on June 23, characterized the rise as concentrated almost entirely in energy prices, with no evidence of generalized inflation spreading across the broader economy.

Oil is the whole story

The closure of the Strait of Hormuz in February 2026, triggered by escalating conflict between Iran and the US, sent benchmark oil prices surging past US$100 per barrel. Gasoline prices followed, and headline inflation did what headline inflation does: it went up.

The Bank of Canada’s baseline forecast projects oil prices declining from roughly US$90 per barrel in the second quarter of 2026 to around US$75 by mid-2027. If that trajectory holds, Macklem expects inflation to drift back toward the 2% target by early 2027, following a peak near 3%.

As of mid-July 2026, oil prices have dipped into the US$70 range after a ceasefire was established in mid-June. But renewed conflict has introduced fresh uncertainty about whether that price relief will stick.

The Bank has held its policy interest rate at 2.25%, a level Macklem describes as supportive of economic growth and sitting at the lower end of the neutral range.

For now, the Bank of Canada is betting on the baseline: oil comes down, inflation follows, and the economy continues growing at a moderate pace without requiring additional policy intervention. Macklem has signaled readiness to manage any spill-over effects from short-term energy price spikes, but the preference is clearly to let the situation resolve organically.

Investors positioning around this thesis should watch two things above all else. First, whether the mid-June ceasefire holds and oil prices continue their retreat toward US$75. Second, whether any signs of broader price pressures emerge beyond the energy sector. If inflation starts showing up in services, housing, or wages, Macklem’s entire framework shifts.

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