Oil Spike on Iran War Seen Boosting Canada’s Growth, Inflation

Article content(Bloomberg) — A sustained rise in oil prices would lift Canada’s economic growth and inflation outlook, Bank of Nova Scotia says.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentThe war in Iran has already pushed petroleum prices higher, which may increase what Canada — a major crude-producing country — earns from exports relative to what it spends on imports.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentA persistent $10-a-barrel boost in the price of West Texas Intermediate would mean the level of Canada’s real gross domestic product would be 0.5% higher by the end of 2027, according to Olivier Gervais, director of modeling and forecasting at Scotiabank.Article contentArticle content“Higher oil prices represent a sizeable nominal income transfer into Canada. Energy sector profits and investment rise, supporting employment and eventually household spending,” Gervais said in a report Monday.Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentThe lift would be partly offset by weaker household purchasing power as gasoline prices rise. While core inflation would be “relatively contained,” the consumer price index would be 0.2 percentage points higher by the end of 2027 and the Canadian dollar would appreciate about 3%, “dampening imported inflation but weighing on non-energy exports.”Article contentOverall, the model implies the Bank of Canada’s policy rate would be 30 basis points higher by the end of next year, said Gervais, who also worked for the central bank for 17 years.Article contentThe analysis underscores the challenge for policymakers confronting overlapping supply shocks. In a speech Monday, Deputy Governor Sharon Kozicki said the central bank’s decision-making becomes more complex during supply shocks, which can simultaneously pressure growth and prices.Article contentThe economy has already been strained by US tariffs that have weighed on exports and business investment. Despite firmer domestic demand in the fourth quarter, output contracted at a 0.6% annualized pace as inventories were drawn down.Article contentArticle contentThe bank projects inflation to stay close to the 2% target over the next couple of years and has signaled comfort with holding the overnight rate at 2.25% as the economy adjusts to structural changes from the trade dispute. Article contentTraders in overnight swaps are betting rates remain at that level through 2026, though pricing for hikes has edged higher since the Middle East conflict escalated. Canada’s bonds have sold off across the curve.Article content“A move higher in oil prices lowers the risk of the Bank of Canada cutting rates this year,” Andrew Kelvin, head of Canadian and global rate strategy at Toronto-Domionion Bank, said by email.Article contentOil surged the most in four years as the first impacts of the war began to be felt, with a near-halt to traffic through the Strait of Hormuz and disruption at a big refinery in Saudi Arabia underscoring the threat to supplies.

West Texas Intermediate was above $70 a barrel in early afternoon trading Monday.Article contentCanadian crude is expected to outperform US benchmarks as refiners seek alternatives to sour grades from the Middle East, including Iraq and Saudi Arabia.Article content—With assistance from Robert Tuttle.Article contentTrending Garry Marr: Bad news, Gen Z — The Freedom 55 guy is still working in his 60s and you will be, too Retirement Saudis pulled deeper into Middle East war after refinery attack Energy Shocks can force Bank of Canada to hike rates even when economy weak, says deputy Economy Subscriber only. Canadian software giants are getting clobbered by the AI scare trade. Should you buy or bolt? Subscriber only Innovation Saudi Arabia's biggest oil refinery halts after drone attack Oil & Gas Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Garry Marr: Bad news, Gen Z — The Freedom 55 guy is still working in his 60s and you will be, too Retirement Saudis pulled deeper into Middle East war after refinery attack Energy Shocks can force Bank of Canada to hike rates even when economy weak, says deputy Economy Subscriber only. Canadian software giants are getting clobbered by the AI scare trade. Should you buy or bolt? Subscriber only Innovation Saudi Arabia's biggest oil refinery halts after drone attack Oil & Gas