A more than 40% jump in oil since Feb. 28 pushed Canada’s annual inflation to 2.4% — yet the Bank of Canada is widely expected to hold its policy rate at 2.25% on April 29, economists said. Brent traded near $106 a barrel after climbing on military strikes involving the U.S., Israel and Iran, lifting gasoline costs. Money markets and a Reuters poll put overwhelming odds on a hold, though some traders still price a later hike. The central bank will publish its Monetary Policy Report alongside the decision with updated forecasts for growth, inflation and wages.

Why a hold is the baseline - The Bank of Canada has held its overnight rate at 2.25% for three straight meetings; most economists polled expect no change at the April 29 meeting. - Markets put the odds of another hold at roughly 93% in one survey. - Policymakers are watching whether the recent spike in gasoline and crude feeds into broader inflation expectations. “What the bank is looking for is whether these expectations of inflation become ingrained among consumers and among businesses, and right now, we're not seeing that,” said Gemma Stanton-Hagan, director of economics and policy at PwC. - That assessment — that the price pickup isn't yet embedded in expectations — supports leaving rates unchanged. Governor Tiff Macklem has signaled caution about reacting to short-term spikes and said he was not worried about a near-term jump in inflation expectations caused by the conflict in the Middle East. How oil pushed inflation higher - Statistics Canada reported headline inflation rose to 2.4% in March from 1.8% in February, with higher crude oil pushing gasoline prices upward. - Canada is a net energy exporter and sensitive to swings in global oil and gas markets. Brent crude reached about $106 per barrel after climbing more than 40% following military strikes since Feb. 28, market data show. - The crude jump feeds into consumer prices via pump prices and transport costs. Economists note this pass-through can lift monthly inflation readings without changing the medium-term trajectory unless wage growth or other cost pressures follow. “There's a lot of weakness in different areas of the economy,” Stanton-Hagan said, pointing to softer activity that counterbalances commodity-driven price increases. - Pedro Antunes, chief economist at Signal49 Research, said the bank would likely upgrade its near-term GDP and inflation outlook in the Monetary Policy Report to reflect energy-driven inflation, and that fiscal policy, not monetary policy, is better suited to address the oil shock. Growth, wages and the limits of monetary policy - Officials must determine whether headline inflation rises from temporary supply shocks or from stronger domestic demand and wages. The BoC targets 2% inflation and watches wage trends closely; sustained wage acceleration would raise the risk of entrenched inflation. - The wider economy shows signs of weakness: activity has been softer than some forecasters expected despite largely avoiding a predicted recession tied to U.S. tariff measures. - That mixed backdrop — higher commodity prices but weak pockets of demand — reduces the likelihood of a policy change unless there is clearer evidence that inflation pressures are persistent.

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The Bank of Canada will announce its policy decision and release the Monetary Policy Report on April 29 at 9:45 a.m. ET.

This article was created with AI assistance.