\u201cThe net impact on growth [from higher oil prices] is expected to be small,\u201d the central bank concluded<\/a>. Finance\u2019s \u201chigher investment\u201d scenario assumes \u201cpolicy efforts to accelerate major projects and catalyze new private investment\u201d get a boost from a global search for stable sources of oil and gas. Inflation-adjusted economic growth would be 1.9 per cent in 2027, the same as the baseline forecast. Finance emphasized<\/a> that \u201crules of thumb\u201d about how oil prices affect economic growth and tax revenue \u201csimplify complex relationships\u201d and that estimates based on \u201chistorical relationships and model-based analysis\u2026 may vary with the broader economic context.\u201d\u00a0\u00a0<\/p>\n Poloz\u2019s freezer still works fine. Higher energy costs do more than hurt consumption. They also stoke inflation expectations, which can lead to more inflation. The Bank of Canada is categorical that it won\u2019t let that happen, which is why governor Tiff Macklem made a point of insisting that he wouldn\u2019t hesitate to raise interest rates, even if households were hurting from higher living costs. \u201cThere may be a need for consecutive increases in the policy rate,\u201d he said<\/a>.\u00a0<\/p>\n An important piece of context when considering a shock like this one is why prices surged. That spike during the pandemic was the result of pent-up demand after most of the world locked down to prevent the spread of the virus. Increased demand for fuel implies increased demand for other goods and services because the global economy is heating up. Factories worry less about rising input costs when the order books are filling up, and households are less sensitive to higher interest rates when the employment rate is high.\u00a0<\/p>\n What we\u2019re confronting now isn\u2019t that kind of shock. Oil prices have skyrocketed because the U.S. war on Iran is choking an important source of supply. Demand hasn\u2019t changed from pre-war levels; if anything, the global economy is now weaker because of what higher input costs are doing to energy importers in Asia and Europe.\u00a0<\/p>\n Canada exports more energy than it imports, so it is shielded from the worst of it. But there is no tailwind for non-energy exporters to catch. The only benefits outside the oil-producing provinces will come from whatever the federal government decides to do with its revenue windfall.\u00a0<\/p>\n \t\t The spring economic update and the Bank of Canada\u2019s latest monetary policy report showed that some of the country\u2019s best economic minds recognize that Canada\u2019s oil industry has fundamentally changed. The central bank\u2019s base case forecast of 1.2 per cent growth in 2026 and 1.6 per cent in 2027 is based in part on the assumption that investment and employment in the oil sector will be \u201cless responsive\u201d to higher prices because the biggest producers now put a \u201cgreater emphasis on dividend payments\u201d and \u201cimproved capital efficiency,\u201d rather than greenfield expansion.\u00a0\u00a0<\/p>\n![\"A](\"https:\/\/www.europesays.com\/canada\/wp-content\/uploads\/2026\/05\/Kevin-Carmichael_May-2_column_bar-chart.png\")
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