Bank of Canada holds at 2.25% again: High oil prices, weak growth impact path ahead

The Bank of Canada (BoC) held its overnight rate at 2.25% on June 10, 2026, the fifth consecutive hold since October 2025. The Bank appears stuck between a softening economy that would normally warrant a cut, and energy-driven inflation it can't ignore. 

Today’s decision to hold rates steady isn't complacency. Policymakers have chosen to wait-and-see while two wildcards—Middle East oil shock and US tariffs play out.

"[The] Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation," says Governor Tiff Macklem at today's address.

The council's message: We see the weakness, we see the inflation, and we're not flinching either way yet.

A ‘technical recession’ isn’t what it sounds like

At the end of May, Statistics Canada confirmed that the country had slipped into a ‘technical recession’. Real GDP shrinking in two consecutive quarters of Q4 2025 and Q1 2026 meets the textbook definition of an economic slowdown.

But details matter. Q1 GDP was barely negative at -0.1%. With Canada’s population now declining, that headline carries less weight than it once did, says Taylor Schleich, director of economics and strategy at National Bank Capital Markets.

Per capita GDP—what the economy produces per person—actually rose in Q1. April data already point to a 0.4% rebound.

“That’s how the Bank of Canada will view it,” Schleich says. “They’ll push back on the idea that this is a real recession.”  

Upside inflation risks appear contained

Headline CPI jumped to 2.8% in April (from 2.4% in March), the highest in two years. But the details tell a more contained story.

The spike is largely energy driven. Gasoline prices jumped 28.6% year-over-year, pushing broader energy costs to their fastest pace since 2022 amid Middle East disruptions. Strip that out, and inflation actually slowed to 2.0% from 2.2%.

Schleich says what matters is what hasn't yet occurred. "What we have not seen is higher energy prices spreading into the prices of other goods and services. So, while overall inflation is up, cleaner core underlying measures of inflation are relatively well behaved."

That’s reflected in core data. CPI-trim and CPI-median eased to 2.0% and 2.1% in April, both near target. Even headline CPI undershot the Bank’s ~3% forecast.  

Policymakers are monitoring if energy costs pass through into wages, services, and expectations. So far, inflation remains limited to energy. Food inflation has eased, services cooled, and shelter remains subdued.

The labour market also limits inflation risk, says Robert Embree vice president and senior economist at Rosenberg Research. Wage-price spirals require worker leverage, which currently is hardly evident. Unemployment is 6.9%, hiring is stalled, and wage growth is slowing. "There's no momentum in the labour market at all—and there's no mechanism that would sustain inflation."

Schleich sums up the trade-off: Upside inflation risk from geopolitics versus downside risk from a weak economy and trade uncertainty. For now, he says, staying put remains the most likely path. 

What the oil shock actually costs Canadians

The Middle East conflict isn’t just raising inflation, it’s directly adding to commuting costs for Canadian.

Gas prices hit 198¢/L in mid-April as crude briefly topped US$120/barrel after disruptions in the Strait of Hormuz. Prices have eased but remain elevated at 196.5¢/L as of mid-May, well above the eight-year average of $1.40. A 10¢ federal fuel tax suspension helps, but only marginally.  

RBC cardholder data shows Canadians spent 18% more at gas stations in March and April than in February. Higher earners can manage about $67 more per month in fuel costs. For the lowest income bracket, the impact is nearly three times harder. 

Ontario's Financial Accountability Office estimates the oil price shock is adding roughly $648 to an average household's annual fuel costs.  

Related: Mortgage expert alert: Will the Iran War and rising inflation offer a buying opportunity in 2026? 

Hiring freeze: Why Canada's job market is soft but not breaking

Canada shed a net 112,000 jobs over the first four months of 2026, pushing unemployment to 6.9% by April—a six-month high.

Beating forecasts, employment jumped 88,000 in May, lowering unemployment to 6.6%. This was the first significant gain since November 2025. But one month doesn't make a trend.  

Brendon Bernard, senior economist at Indeed Canada, cautions about reading into May’s positive numbers right after April's job losses: "The margin of error is 32,000." The clearer signal is the trend. Unemployment has hovered around 7% for more than a year, moving in a narrow band—a labour market not collapsing, but stuck.

"That's been the general trajectory…a disappointing holding pattern," he says. 

Job losses aren’t from layoffs

Permanent layoffs have actually fallen nearly 10% since October 2025. Companies aren't cutting workers; they're just not replacing them.  

That shows up in the employment rate, which has dropped to 60.5% in April, matching its lowest point since August 2025. "A lot of firms have adopted a wait-and-see attitude," Embree says. "They're not prioritizing hiring." 

Weakness is also concentrated in certain tariff-exposed industries. Manufacturing accounts for 41% of payroll exposure to U.S. demand.  

Demographic undertow

Immigration cuts and record retirements are shrinking Canada's workforce. According to RBC Economics, without immigration, the 15–34-year-old population would fall by about 186,000 a year over the next five years, narrowing the hiring pipeline.

With fewer workers, flat job growth signals stability, not weakness, says Bernard. "The Bank is not going to be reacting too much when we see a small negative like we saw in April." Instead, the Bank is watching unemployment, which better captures population changes. A sustained rise in job losses is what would force a reassessment. 

Housing: Rebound hasn't surfaced

The Bank cut rates nine times between mid-2024 and late 2025. The rebound in the housing market hasn’t yet materialized.

Home sales rose just 0.7% in April and remain 4% below last year. Listings climbed 4.1% indicating more sellers than buyers. The average sale price sits at $666,400, down 4.1% year-over-year. The market may be technically balancing, but it doesn't feel that way to sellers waiting for offers.

The picture also splits regionally: Prices continue to fall in B.C. and Ontario, while Alberta and Saskatchewan remain tight—with under three months of housing supply.  

A deeper issue is structural. Canada's population fell 0.2% year-over-year in January—the first decline recorded—removing a source of demand. Schleich notes the post-Covid-19 immigration surge drove much of the pressure: “If you remove that surge in demand, that helps with prices at the margin.”

After years of declines, buyers expecting further drops may simply wait—turning hesitation into a self-reinforcing slowdown.

Read more: Why Canadian housing seems unaffordable in 2026: A 35-year real estate disconnect

Toronto's condo market hits rock bottom

Nowhere is the overhang clearer than in Toronto. The GTHA saw 246 new condo sales in Q1 2026—a 35-year low, down 52% year-over-year. There were no new project launches January–March for the first time in three decades.  

Unsold inventory has surged: 4,295 completed units, or 92 months of supply sit in the market. Developers have cut prices to $1,189 per square foot (down 13% from the peak), while resale units are trading at $859—a record 38% gap.

"Construction started several years ago when demand was stronger," Embree says—now delivering into a market that can’t absorb it.

Learn more: Ask the mortgage expert: How to buy a home in 2026, between budgets, builders, and opportunities

Where are rates expected to go next?

Markets are pricing in roughly one more hike before year-end—down from two just weeks ago, Embree says. But he’s skeptical if even that will materialize.  

"Looking at all the recent data on inflation, on the labour market, and on GDP, it's probably more likely that even that additional hike isn't going to be necessary."

While viewing BoC’s current neutral stance as appropriate, Schleich cautions that should oil inflation risks ease without a rebound in growth, then talk of interest rate cuts is probable. “There’s a lot of risks in the near term that you have to navigate before you get to that point."

April BoC announcement: Bank of Canada holds rate at 2.25% as weak growth collides with energy inflation risks