Governor of the Bank of Canada, Tiff Macklem, before speaking before the Canadian Club Toronto at the Royal York Hotel in Toronto on Dec. 15, 2023Carlos Osorio/The Globe and Mail

Jeremy Kronick is associate vice-president and director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute, where Steve Ambler, a professor of economics, Université du Québec à Montréal, is the David Dodge Chair in Monetary Policy.

The Bank of Canada again held its target for the overnight rate at 5 per cent on Wednesday, as expected.

The clamoring had begun for the bank to consider dropping rates in hopes that inflation is headed back to 2 per cent. However, the latest numbers (for December) disappointed, with headline inflation ticking back up to 3.4 per cent (from 3.1 per cent), and core measures flat or, in the case of CPI-Trim, slightly higher. On Wednesday, the bank stressed upside risks to inflation coming from greater-than-expected persistence.

However, the announcement did not mention geopolitical risks, particularly the effect of the disruption of maritime traffic in the Red Sea, its impact on shipping costs, and the knock-on effects on inflation. We think this risk is important and that the bank should address it more directly.

If inflation spikes as a result of these disruptions, what........

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