- Lead. Bank of Canada Governor Tiff Macklem said last week that the central bank “will consider implementing interest-rate hikes” if elevated oil prices continue to push inflation higher — the first explicit rate-hike warning from a G7 central bank since the Iran conflict drove energy costs sharply upward.
- Fact. The Fed, the ECB, and the Bank of England all held rates unchanged at their late-April meetings, but dissent is building: one Bank of England member voted for an immediate quarter-point increase.
- Stake. With Brent crude near $109 a barrel — up roughly 60 percent since the Iran conflict began in late February — the inflation-versus-growth calculation that central banks had appeared to resolve is now being reopened.
Central banks that spent the better part of 2025 cautiously cutting rates now face the prospect of reversing course. The immediate trigger is an oil price shock that has proved more durable than most forecasters expected. Canada’s central bank, which held its policy rate at 2.25 percent on April 29, moved furthest in signalling the shift. “If things evolve broadly in line with the outlook we have presented, and in particular, oil prices come down broadly in line with the futures curve, something close to the policy rate that we have today is probably about right,” Macklem said — but added that if elevated oil prices boost inflation, rate hikes would be considered.
A split at the Bank of England
The Bank of England’s April 30 decision to hold Bank Rate at 3.75 percent was far from unanimous. The vote was 8-1, with a single member backing an immediate 25-basis-point increase — the first public dissent in favour of tightening at the BoE in over a year. The committee noted that the current energy shock “differs from 2022 as the increase in energy prices has been smaller,” but its inflation projections have been revised upward. CPI in the United Kingdom reached 3.3 percent in March 2026, above the 2 percent target, and the Bank expects it to remain between 3 and 3.5 percent through the second and third quarters.
At its seventh consecutive hold on April 30, the ECB kept its benchmark at 2.00 percent, warning that a prolonged conflict in the Middle East would have a “stronger impact on broader inflation and the economy.” The Federal Reserve, which held at 3.50–3.75 percent at its late-April meeting, was more guarded: it noted it “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge” — language that leaves the door open to either direction.
What the oil price means for the rate path
The central banks’ collective hesitation reflects an uncomfortable arithmetic. The Fed’s transition to incoming Chair Kevin Warsh adds a layer of uncertainty to the US rate outlook, with markets unsure whether Warsh will tilt toward accommodation or restraint. For the Bank of Canada, the calculus is sharpened by the country’s direct exposure to US tariffs, which have already dampened export growth even as domestic inflation climbs.
The signal from Macklem’s April press conference is that the period of central bank inaction may be shorter than markets assumed at the start of the year. If Brent crude holds above $100 through the summer — which futures curves suggest is plausible as long as the Strait of Hormuz remains disrupted — at least one G7 central bank is likely to move before the fourth quarter. Whether others follow will depend on how quickly tariff-driven demand weakness offsets energy-price inflation: a balance that remains too fine to call from Ottawa, Frankfurt, or Washington.