The Bank of Canada held its key interest rate steady today, keeping its target for the overnight rate at 2.25 per cent.
The decision comes as the bank weighs weak Canadian economic activity against renewed inflation pressure from higher energy prices and global uncertainty.
The bank said the conflict in the Middle East, now in its fourth month, has pushed energy prices higher and disrupted global supply chains, weighing on global growth and adding to inflation.
It also pointed to ongoing uncertainty around US trade policy, with the American administration continuing to propose new tariffs.
In Canada, GDP edged down 0.1 per cent in the first quarter, which was weaker than the bank expected in its April Monetary Policy Report.
Consumer spending grew 1.4 per cent, but government spending declined unexpectedly, housing activity fell and business investment remained weak.
Exports also fell while imports rose sharply as inventories were rebuilt.
The bank said employment rose in May, but overall employment has been little changed since the start of the year when monthly volatility is taken into account.
The unemployment rate has continued to move between 6.5 and seven per cent, with the latest reading at 6.6 per cent in May.
Recent data suggests growth will resume in the second quarter, but the bank said the economy is expected to remain in excess supply even with some rebound.
Inflation rose to 2.8 per cent in April, which the bank said was expected.
The increase was driven by higher energy prices, including oil, and by the elimination of the consumer carbon tax falling out of the 12-month inflation calculation.
The bank said there has so far been limited evidence of higher energy prices broadly feeding into other consumer prices.
Core inflation measures have moved down to around two per cent, while the share of CPI components growing above three per cent is close to its historical average.
Food inflation has moderated but remains high, and shelter inflation has continued to slow.
With global oil prices still elevated, the bank expects total inflation to hover around three per cent in the near term before gradually easing toward two per cent.
“Economic activity in Canada has been weak and uncertainty about US trade policy persists,” the bank said.
“The conflict in the Middle East is ongoing and oil prices remain elevated.”
The bank said it will continue to look through the war’s near-term impact on headline inflation, but added that it “will not let higher energy prices become persistent inflation.”
The next scheduled interest rate announcement is July 15, 2026, when the bank will also release its next Monetary Policy Report.
