The Strait of Hormuz has been effectively shut for about seven months, and oil is trading around $100 a barrel, up from roughly $72 before the crisis. In response, central banks have been doing what they usually do when prices rise: raising interest rates. The European Central Bank hiked on September 10. The Federal Reserve followed on September 16. The Bank of Japan moved two days later. There's just one problem, and it's the question behind this whole article: can an interest rate reopen a shipping lane?
Two kinds of inflation
Economists sort inflation into two broad families. The first is demand-driven: people and businesses are spending more than the economy can produce, so prices rise. Central banks are good at this one. Higher interest rates make borrowing more expensive, spending cools, and prices ease.
The second is a supply shock: something makes a key input scarcer or more expensive, and everything that depends on it gets pricier. Oil is the classic example. Raising rates doesn't create a single extra barrel. It can only reduce how much the rest of the economy spends, which is a blunt and painful way to offset a problem that started in a shipping lane.
What the numbers actually show
The latest U.S. inflation data tells the story clearly. In August, headline inflation was 3.4% year over year. But core inflation, which strips out food and energy, fell to 2.4%, the lowest since March 2021. The gap between those two numbers is energy: gasoline was up 27.4% from a year earlier, and it accounted for over a third of the month's overall price increase.
In other words, the part of the economy that interest rates are designed to influence has been cooling. The part driving the headline is oil, which rates can't touch.
So why hike anyway?
Central banks have a reason, and it comes from 2022. Back then, many officials treated the energy spike as temporary and waited. Higher energy costs then leaked into wages, services and everyday pricing, in what economists call second-round effects, and inflation proved much harder to bring down than expected.
The ECB says it's trying not to repeat that mistake. Its own staff projections have core inflation ending up slightly above headline inflation by 2027, a sign that officials expect price pressure to spread beyond energy. The logic is preventive: raise rates now, before higher fuel costs get baked into what people expect and ask for.
The debate isn't really whether rate hikes can lower oil prices. They can't. It's whether they can stop an oil shock from turning into a broader inflation problem.
The cost of the medicine
Not everyone agrees the trade-off is worth it. Some analysts argue that hikes are ineffective against an oil supply shock, and that the pass-through to other prices may be limited and temporary. Meanwhile, the downside is concrete: higher borrowing costs for mortgages, businesses and governments, at a moment when growth is already softening.
The U.S. jobs report on Friday gave a taste of that tension. Employers added just 29,000 jobs in September, far below forecasts, and unemployment rose to 4.2%. Markets cheered, because the weak data lowered the odds of another Fed hike in October. But it also means central banks are tightening into an economy that looks less sturdy than it did a few months ago.
Where Canada fits
The Bank of Canada has held its policy rate at 2.25% for seven straight decisions, but it's now under the same pressure. Two dates matter: September's inflation numbers arrive on October 19, and the Bank's next decision comes on October 28. Whether it joins the hiking club depends largely on whether higher energy prices are starting to spread through the rest of the Canadian economy.
What to watch
The real swing factor isn't any central bank. It's the strait itself. Iran said this weekend that it won't reopen it until the U.S. meets seven conditions, so a quick resolution isn't on the table. Until oil supply recovers, central banks are stuck managing the consequences of a shock they have no way to end, and choosing between inflation and growth with the only tool they have.
Sources
World Bank — Strait of Hormuz disruption sends oil prices surging
Discovery Alert — Strait of Hormuz oil impact, October 2026
US Inflation Calculator — August 2026 CPI
Khan Capital — The ECB rate hike, September 2026
State Street Global Advisors — Weekly Economic Perspectives, Sep 15, 2026
Yahoo Finance — September 2026 jobs report
RBC — Bank of Canada interest rate announcements