The price of war

Poor Tiff. Everybody’s gonna hate you again.

The economy sucks, largely due to Trump tariffs. People are losing jobs. Houses can’t sell. We need lower rates.

But wait. Trump’s war spiked oil. Inflation will come back. Prices will jump again. We need higher rates to stop it.

The Bank of Canada governor’s solution this morning was classic. Do nothing. Once again the CB rate stays put, no change since October – which now seems like the good ol’ days. In fact Tiff Macklem’s official statement this morning made things clear. Nobody has a clue. But it’s not good.

“The war in the Middle East has increased volatility in global energy prices and financial markets, and heightened the risks to the global economy. The breadth and duration of the conflict, and hence its economic impacts, are highly uncertain.”

In case you missed it, that war got a tad worse in recent hours as the burn-it-all-down Israeli forces decided to make the global economy worse and started bombing Iranian oil infrastructure. The massive South Parts offshore gas field was targeted as the IDF trashed oil and petrochemical facilities in Asaluyeh – where the stuff is pumped for processing from under the Persian Gulf.

The offshore resource is shared with Qatar, which said Israel had taken “a dangerous and irresponsible step” putting world energy security at risk.

Mr. Market agreed. Oil immediately spiked to almost $110 a barrel. Stocks sank. Bond yields increased as prices dropped. And meanwhile Trump was musing the US might pull out of NATO because allies were not coming to join his escapade in the Middle East. (The alliance – which we are part of – is a defensive one, not intended for a war of choice started by one member.)

Well, as stated here the other day, economists see inflation of 1.8% in Canada jumping to at least 3% this month. Meanwhile the unemployment rate has increased substantially and we just suffered the greatest monthly job loss since the pandemic. Youth joblessness is 14% and most of the 84,000 paycheques lost in February were those of full-time workers. Ouch.

So Macklem knows things are weak and perilous. In normal times the CB would be hustling to drop the cost of money in order to blunt the pre-recession conditions. “Recent data suggest that near-term economic growth will be weaker than anticipated in January,” the bank admits. “The labour market remains soft. Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February. Looking through the volatility, recent data also suggest ongoing weakness in exports.”

And, as mentioned, the key real estate market is in the ditch. New home construction in major markets has come to a virtual halt. The resale market is weaving like a constipated moose. Buyers are convinced it’s too dangerous a time to make an offer. And the toll on consumer confidence is palpable.

But against that backdrop of slumping demand, we have the reality of spiking costs.

The bankers know that, too. “Since the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term,” says the central bank this morning. “In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer. Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened.”

So, risks to growth in Canada are now “tilted to the downside”, Tiff tells us, while the danger of inflation has jumped. Trump slapped us once in his tariff trade war. He is whacking us again with his real one. And let’s mot even talk about White House officials wooing the Wexit weirdos in Alberta.

So, we have a dilemma. Lower rates would help fend off recession, create jobs and sell houses. But that increased economic activity when energy costs are going nuts could end up causing heart attacks in the grocery store – and reinflate real estate prices. This, CB paralysis. The only sane thing to do is to do nothing.

There are only four words that matter now.

When will it end?

Only one man knows. Dog help us.

About the picture: “Here is a shot you might like,” writes Pete, from BC’s Hornby Island. “Four cattle dogs leading their herd to safety during a flood. Spring time in Colorado.  The stock dogs are Golden Retreivers. I enjoy your blog every day.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/03/18/the-price-of-war/