OTTAWA--Senior Bank of Canada policymakers agreed that inflation risks had intensified and rate increases could be required should evidence emerge of higher fuel costs spilling over to prices of other goods and services, according to the minutes of the central bank's latest rate-policy deliberations.

The Bank of Canada kept its benchmark interest rate unchanged at 2.25% on Sept. 2, although Gov. Tiff Macklem adopted an alarmed tone about the upside risks to inflation stemming from the protracted war between the U.S. and Iran that has curtailed oil-tanker traffic through the Strait of Hormuz and shows no sign of an imminent end.

The minutes published Wednesday indicate senior policymakers debated how to juggle policy given the likelihood of energy prices remaining elevated for an extended period, and how a nascent recovery is at risk due to an escalation in tariffs on Canadian goods from the Trump administration.

Officials also debated how much spare capacity, or slack, there was in the economy, and whether any drag on growth from new U.S. tariffs and the threat of more duties was enough to offset inflationary pressure.

Since the central bank's most recent forecast in July, "economic data showed that the economy and inflation had evolved" as expected "but the main risks had become more acute," according to the minutes.

"While supply shocks can present a tension between addressing economic weakness and rising inflation, members agreed to reiterate that the stance of monetary policy will be guided by the bank's inflation forecast and the risks around it," the minutes said.

The minutes cover deliberations starting on Aug. 25 involving members of the Bank of Canada's governing council, which is tasked with setting rate policy. The central bank's mandate is to set the target for the overnight rate at a level that achieves and maintains 2% inflation.

Among the chief concerns for officials was the conflict in the Middle East, which has kept energy prices higher. Crude oil prices now trade at over $100 a barrel, and the cost of a gallon in the U.S. for diesel--used in heavy transportation, agriculture and construction--hit a record high this week.

According to the minutes, officials said total inflation sits at 3% and is likely to stay there in the near term. Officials said there was no indication higher fuel costs had spread to other goods and services, adding that core inflation--which strips out energy, food and other volatile items--was close to 2%, and the consumer-price index, excluding gasoline, was 2.2%.

In the end, the governing-council members agreed that the longer gasoline prices remained high, the more likely they would spill over to other items and lift inflation further upward.

"If energy prices did spill over into other components of CPI, members agreed that it could require a monetary-policy response to prevent broad-based inflation from setting in," the minutes said.

The yield on the two-year Canadian government bond has climbed to about 1.1 percentage points above the central bank's main interest rate--a sign, economists say, that traders anticipate a rate increase perhaps as early as next month. Some analysts say one rate boost before the end of 2026 is possible, while others argue the drag coming to growth from U.S.-Canada trade tensions could persuade the Bank of Canada to remain on hold.

"Any weakness in growth will be factored into the forecast for inflation," the minutes said, in reference to a new quarterly Bank of Canada outlook coming next month. The effects of developments in energy prices would also be factored in, the policymakers indicated via the minutes.