The Bank of Canada warned in a summary of the Governing Council's deliberations that gasoline prices remaining elevated for longer could spread inflationary pressures to other goods and services, potentially requiring higher interest rates to prevent inflation from becoming entrenched.
Concerns over broader price pressures
The meeting summary showed that policymakers have not yet detected higher fuel prices feeding through to other inflation components, but they believe that gasoline prices remaining elevated for longer increases the likelihood that the pressures will spread to other goods and services.
The bank links the possibility of tighter monetary policy to the extent and persistence of these pressures, as inflation remains near 3% and energy prices rise.
Trade and war among economic risks
The Bank of Canada said the trade dispute with the United States and the war in Iran remain among the key risks facing the Canadian economy, alongside energy-price and inflationary pressures.
