Posthaste: Here’s one reason why the Bank of Canada could be forced to hike interest rates this year

There’s now a case to be made for an

interest rate

hike this year, says one economist, as the

Bank of Canada

gets set to announce its next rate decision on March 18.

Governor Tiff Macklem, during the last Bank of Canada rate announcement on Jan. 28, said interest rates were at about the right level of 2.25 per cent to keep inflation in check and help the economy navigate United States tariffs. But he also left the door open to make a move if risks increased due to “heightened uncertainty.”

The U.S. and Israel have since attacked

Iran

, sidelining one-fifth of the world’s crude exports. One area of Canada’s economy vulnerable to the fallout from the Iran crisis is consumers’ inflation expectations, Bradley Saunders, North America economist at Capital Economics Ltd., said.

He said the Bank of Canada would contemplate “bringing rate hikes forward into this year” should inflation expectations rise.

“This is always a risk during

oil

supply shocks, given consumers keep a close eye on prices at the pump,” Saunders said in a note on Thursday.

The average price for a litre of regular gas in Canada was $1.59 on March 12 compared with $1.43 on March 2, according to Kalibrate Technologies Ltd.

Saunders also said

food inflation

coupled with rising

oil prices

is something of a toxic mix when it comes to inflation expectations, especially since gas and food account for roughly one-fifth of most households’ spending.

Food inflation accelerated 7.8 per cent, according to the last consumer price index (CPI) report, compared with a 2.3 per cent increase in the overall CPI.

The Bank of Canada’s mandate is to adjust interest rate policy to keep overall

inflation

as close as possible to its two per cent target.

Saunders isn’t the only one who thinks rate hikes are coming this year.

Markets are now fully pricing in a rate hike in September when only a few days ago, the earliest investors saw that happening was by year-end, according to Bloomberg data.

However, the C.D. Howe Institute’s Monetary Policy Council (MPC) on Thursday called for the Bank of Canada to hold rates on Wednesday and remain there until March 2027. The MPC, which includes economists from Canada’s six largest banks plus academics and financial experts, makes formal recommendations to the Bank of Canada’s governing council.

The MPC said there’s too much uncertainty around the war, its impact on oil prices and what it means for the

Canadian economy

.

“As monetary policy works with a lag, the question is not where oil prices are today, but where they will be later in the year,” the MPC said. “On that front, there is significant uncertainty.”

Charles St-Arnaud, chief economist at Servus Credit Union, said the Bank of Canada’s next moves will depend on how long the Middle East conflict lasts.

“The longer energy prices remain elevated and feed into other costs and prices in the economy, the greater the pressure on the Bank of Canada to raise interest rates to counteract these inflationary pressures,” he said.

Either way, St-Arnaud said the oil price shock looks like it will be “a net negative” for Canada’s economy. It likely won’t spur investment in the oil and gas sector, whose capital budgets require long lead times, but it could last long enough to take a toll on Canadians’ purchasing power — how far a dollar will stretch — and business profitability.

• Posthaste: Why higher oil prices could be the key to ending the energy crisis
• Posthaste: Canada is losing the productivity battle, even in the grocery aisles

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Total household net worth rose by another six per cent year-over-year in the third quarter of 2025 to hit $18.4 trillion, according to the latest data from Statistics Canada. On average, this amounted to $1.07 million per household, with nearly half of this wealth concentrated in real estate.

However, a closer look at the data reveals assets, liabilities and net worth gains look very different depending on age, wealth status or even province of residence. In the latest quarterly Financial Post Wealth Report, Serah Louis breaks down which assets are driving some households forward and the liabilities holding other households back.

Keep reading

here

.

• Today’s data: Jobs numbers for Canada, manufacturing sales
• Earnings: Illumin Holdings Inc., Conifex Timber Inc., Denny’s Corp.

• CRA refused to cancel TFSA overcontribution tax
• ‘The bids just dried right up’: Iran-driven oil shock ripples through Canadian economy
• Canada once considered building an emergency oil reserve with the U.S., but the Americans backed out

Silvia, single and 61 years old, has a $200,000 nest egg that is currently split between her tax-free savings account and her registered retirement savings plan. She says she is not optimistic about the world economies and wonders if Treasury bills or guaranteed investment certificates are enough of an investment to protect her principal. She makes about $60,000 annually, has no employer pension and plans to take her Canada Pension Plan and Old Age Security at age 65, which she’ll be able to live on since the mortgage on her condo will be paid off by then. She wonders if her proposed strategy for preserving capital is sound or whether she is overlooking something? Keep reading here to find out more.

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column

can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

mortgage rate page

for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s

YouTube channel

for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

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