10/28/2026
The Bank of Canada, Oil Prices & What It Could Mean for Interest Rates.
The Bank of Canada raised its benchmark interest rate by 0.25 percentage points this morning, bringing it to 2.50%. The decision comes amid concerns that elevated energy prices could continue putting upward pressure on the cost of goods and services.
This increase is expected to push prime rates higher, with many lenders moving from 4.45% to 4.70%. For homeowners with variable-rate mortgages, this could mean higher borrowing costs and, depending on their mortgage terms, potentially higher payments.
But there’s an important question worth asking:
What happens if oil prices stay high but stop rising?
Oil prices were significantly lower in 2025 than they are today. As a result, the sharp increase in oil prices throughout 2026 has contributed to higher year-over-year inflation.
However, if oil prices remain around $100 per barrel throughout 2027, the picture could begin to change.
Even if oil remains expensive, its contribution to year-over-year inflation could start to ease simply because prices would no longer be rising as sharply compared with the previous year.
In other words, oil prices don’t necessarily have to fall for their impact on inflation to diminish. They just need to stop climbing as quickly.
The challenge is that higher energy costs don't affect just what we pay at the pump. They can also increase transportation, production, and operating costs for businesses, which may eventually be passed on to consumers.
The Bank of Canada's inflation outlook points to inflation averaging around 3% in 2027 before returning to its 2% target by mid-2028.
So, here's the big question:
If oil prices stabilize, will the delayed impact of higher energy costs be enough to keep inflation elevated — and what could that mean for future interest rates and the Canadian housing market?
Time will tell. But this is certainly something worth watching as we look ahead.
