Inflation continues to climb, but economic weakness weighs on the BoC as well
The Bank of Canada (BoC) held rates steady at 2.25 per cent today, it's fifth straight interest rate hold.
The decision comes amid a flurry of different economic data, highlighted by the BoC.
"The conflict in the Middle East is now in its fourth month. The resulting increases in energy prices and disruptions in global supply chains are weighing on global economic growth and pushing up inflation. At the same time, the US administration continues to propose new tariffs and trade policy uncertainty remains elevated," a press release accompanying the decision reads.
Canada is in a technical recession, with GDP contracting in Q4 of 2025 and Q1 of 2026, though the Q1 contraction was by 0.1 per cent. Inflation remains above the Central Bank's target rate of two per cent, with April CPI coming in at 2.8 per cent year over year. Inflation has largely been driven up by high energy prices due to the ongoing US-Israeli conflict with Iran.
On the more positive side, the Canadian economy added 88,000 jobs in May, which surprised economists and offset some of the job declines seen in Q1 of 2026.
"Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%," the release reads. "Economic activity in Canada has been weak and uncertainty about US trade policy persists. The conflict in the Middle East is ongoing and oil prices remain elevated. Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation."
