Bank of Canada Sees Higher Oil Prices Boosting Growth, Inflation

Bank of Canada Governor Tiff Macklem said he’s seeing more evidence that higher oil prices are supporting economic growth in Canada, and expects the bank will have a higher inflation forecast at the end of the month.

Unlike most other major economies, Canada is a net exporter of energy, causing “differential effects” for the northern country, Macklem said Saturday. He spoke to reporters in a callback from a meeting of the International Monetary Fund and World Bank Group in Bangkok.

While high gas prices eat up more of consumers’ and businesses’ budgets, limiting their purchases, they’re also boosting exports, incomes, government revenues and investment, he said.

“Higher oil prices mean there is more income coming into the country from our exports, and you can see that that is having a positive effect on growth,” Macklem said.

The bank has warned that it may need to hike borrowing costs if energy prices remain elevated, and policymakers see more evidence of inflation pressures spreading from higher gasoline prices to other goods and services.

“There’s no resolution in sight for the conflict in the Middle East,” Macklem said, adding that he expects the outlook for inflation to be higher when the central bank offers its new forecast in the monetary policy report later this month.

“The question we’re going to be asking ourselves is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?”

The Bank of Canada next sets rates Oct. 28. Traders in overnight swaps put the odds of a hike at that meeting at over a third.