The Bank of Canada expects Monday’s inflation report to show a substantial rise in the consumer price index while keeping the headline rate below 3%, Governor Tiff Macklem said Friday after meetings in Washington. The projection suggests a sharp move up from February’s 1.8% inflation pace, largely driven by this year’s surge in global energy prices.
Inflation outlook and energy shock
Macklem’s comments align with private-sector forecasts that anticipate a notable month-on-month acceleration in inflation. The first quarter of 2026 saw Brent crude oil jump from about $61 to $118 per barrel, a move widely seen as the main driver of the upcoming increase in headline CPI.
At the same time, Macklem signaled that the central bank views the inflation impulse as heavily energy-driven and potentially temporary, stressing the need to avoid letting short-term price spikes feed longer-term price expectations.
Weak domestic growth and rate decision risk
Despite the stronger inflation print expected Monday, Macklem described Canada’s domestic growth as “weak.” Official data show the economy expanded only 0.1% in January, with a preliminary estimate of 0.2% for February. First-quarter growth is tracking at an annualized 1.3% to 1.8%, underscoring a sluggish backdrop.
Macklem said the central bank must carefully balance the timing of interest rate decisions to avoid either choking off already modest growth or allowing inflation pressures to become entrenched. That balancing act will frame the Bank of Canada’s next policy decision scheduled for April 29.
Diverging global policy paths
Speaking on the sidelines of the International Monetary Fund meetings, Macklem emphasized that differing economic conditions are driving central banks onto separate policy paths.
He noted that variations in inflation trends, growth performance and the impact of recent oil price swings are likely to lead to diverging interest rate strategies, rather than a coordinated global shift in policy.
Oil market volatility adds uncertainty
Recent moves in energy markets have reinforced the uncertainty facing monetary authorities. WTI crude futures fell more than 10% on Friday, dropping below $84 per barrel after news that a key Middle Eastern shipping route would reopen.
The rapid reversal from earlier price spikes highlights the volatility monetary policymakers must factor into their outlooks. A sustained pullback in oil prices could quickly alter inflation projections for the second quarter and beyond.
Market focus on data and central bank signals
For traders with positions sensitive to interest rate expectations, the next two weeks are likely to be dominated by incoming data and Bank of Canada communications.
Monday’s inflation release is expected to set the immediate tone for markets, with attention then shifting to the April 29 policy announcement and the bank’s forward guidance on rates and growth.
AI, systemic risk and long-term inflation pressures
Macklem also confirmed he discussed advanced artificial intelligence developments with U.S. Federal Reserve Chair Jerome Powell, including Anthropic PBC’s Mythos model. The conversation took place alongside broader exchanges among central bankers on economic policy.
Regulators are examining the potential for powerful AI systems, such as Mythos — which has shown a strong capability to detect cybersecurity vulnerabilities — to introduce new forms of systemic risk in the global financial system.
Powell has recently highlighted another dimension of the AI boom: the rapid build-out of data centers required to support these systems. He has noted that this wave of infrastructure spending is already adding to price pressures in some segments of goods and services, injecting an emerging structural factor into the medium-term inflation debate.
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