The Bank of Canada’s Impossible April: Inflation Is Rising and Growth Is Stalling at the Same Time

In ordinary circumstances, the Bank of Canada’s April 29 rate decision would be straightforward: hold at 2.25%, reiterate the data-dependent stance, and update the Monetary Policy Report with modest revisions. The Hormuz crisis has made April 29 anything but ordinary. Governor Tiff Macklem will face a press conference where the honest answer to almost every question is some version of: “We don’t know yet, and the tools available to us don’t cleanly address what’s happening.”

The Inflation Problem

When the Bank held rates on March 18, CPI inflation was 1.8%, comfortably below target. That reading was taken before the full price pass-through from the oil shock reached Canadian consumers. Brent crude peaked near $126/barrel in mid-March. Gasoline prices in Canada have risen significantly since February 28. The IEA’s April oil market report, published this week, projects global oil demand to contract by 80,000 barrels per day in 2026, a dramatic reversal from earlier forecasts of 640,000 bpd growth. But that demand destruction is a lagged response to price. Before demand falls, prices rise, and Canadian consumers have been absorbing those higher prices at the pump for seven weeks.

The Bank’s own March statement acknowledged the dynamic explicitly: “The sharp increase in global energy prices has led to increases in gasoline prices, and this will push up total inflation in the coming months.” The April 29 MPR will need to put numbers on that forecast. Most external analysts expect CPI to print between 2.5% and 3.2% for the March and April readings, with the energy component responsible for the entire overshoot above the 2% target.

The Growth Problem

The inflation overshoot would be more manageable if the Canadian economy were running hot. It is not. Canada’s unemployment rate held at 6.7% in March 2026, unchanged from February and only marginally below the 6.8% forecast. Employment gains from the fourth quarter of 2025 have been largely reversed. The Bank’s own March statement noted that “near-term economic growth will be weaker than anticipated.” Exports remain weak, business investment is cautious, and Canadian mortgage holders are still digesting the 2022-2024 rate cycle.

The policy dilemma this creates is textbook stagflation: an economy with weak growth and rising prices simultaneously, where the standard monetary policy responses work in opposite directions. A rate hike would cool inflation expectations but further suppress an already-soft labour market and add pressure to variable-rate mortgage holders. A rate cut would support growth and employment but risk entrenching the oil-driven inflation overshoot and signalling that the Bank will accommodate supply-shock price increases rather than fight them.

What April 29 Will Actually Tell Us

The rate decision itself is not the story. Markets assign less than 10% probability to any change on April 29. The story is the Monetary Policy Report language. Specifically: how does the Bank characterize the inflation risk from oil, does it explicitly use the word “stagflation” or a close equivalent, and what scenarios does it prepare the public for if the Hormuz blockade persists through the summer?

The EIA’s April Short-Term Energy Outlook, published last week, forecasts Brent averaging $115/barrel in the second quarter of 2026 before easing. If that forecast is roughly correct, Canadian CPI will remain above 2.5% through at least the third quarter. The Bank cannot raise rates aggressively into a weak labour market. It cannot cut into re-accelerating inflation. The most likely April 29 outcome is a hold with language that acknowledges both risks explicitly and preserves optionality in both directions, while giving the market very little to trade on. That is not weakness. In the current environment, it is the honest and appropriate response.