September inflation hit 3.1%, but core measures eased ahead of the rate call
Money markets are not expecting the Bank of Canada to move its key rate on October 28 or in December, but they are pricing 100 basis points of increases over the course of next year, Reuters reported on Saturday. The pricing came as Governor Tiff Macklem said the Bank expects to raise its inflation forecast significantly this month, citing persistently high prices for crude oil and petroleum products.
The policy rate has stood at 2.25% since a quarter-point cut in October 2025, according to the Bank. For advisors, the gap between a quiet near term and a sizeable priced-in path of hikes matters for clients with floating-rate debt, mortgages up for renewal and fixed-income holdings. Expectations of higher rates tend to lift bond yields and borrowing costs well before the central bank moves.
Pricing has shifted over the past week. Wealth Professional reported last week that traders were still pricing a 25-basis-point December increase. That was after Statistics Canada said the economy shed 68,000 jobs in September and the unemployment rate rose to 6.5%. Manufacturing lost 13,000 positions in the first full month after a new round of US tariffs.
Economists mostly leaned toward a hold this month. TD Economics and CIBC both expected the Bank to stay on the sidelines in October. Capital Economics expects an eventual increase to 2.75%, the midpoint of the Bank’s neutral range, as a guard against energy and food price risks.
Macklem points to oil and refinery damage
Macklem spoke to journalists by conference call from Bangkok on Saturday, Reuters reported. The Bank’s new quarterly inflation and growth forecasts will feed into the October 28 decision.
He said the ongoing conflict in the Middle East, disrupted shipments and damaged refinery capacity have increased the risk that inflation broadens and becomes more persistent. The Bank’s anchor remains its inflation target. “Our beacon is our 2% inflation target,” Macklem said, adding that policy-makers are prepared to adjust monetary policy as needed.
Central bankers’ main task, Reuters reported, is to judge whether higher oil and fuel prices will spill into the wider economy. Macklem framed the October 28 choice as whether inflation is likely to return toward target on its own, or whether higher interest rates are needed to nudge it back.
He also said the global economy has shown resilience despite the Middle East conflict and the Russia-Ukraine war, but that resilience is being tested by higher costs and tighter financial conditions. Governments, he added, have less fiscal room to manoeuvre and need to adjust their policies to rebuild it.
Data sends mixed signals
Macklem’s comments came before Monday’s inflation report. Statistics Canada said the consumer price index rose 3.1% year over year in September, up from 3.0% in August, driven by gasoline prices that were up 27.8%. That put inflation above the Bank’s 3% upper limit again. Excluding gasoline, inflation was 2.2%, down from 2.4%.
Reuters reported that two core measures the Bank watches eased, with CPI-median at 1.9% and CPI-trim at 1.8%. BMO chief economist Douglas Porter told CTV News the report “does nothing to advance the case” for rate hikes. After the data, the two-year Government of Canada bond yield was 2.545%, Reuters reported.
The outlook is a notable change from April, when the Bank held rates and said it expected inflation to return to its 2% target by early 2027, Reuters reported. At that time it said there was little evidence higher oil prices were feeding into other goods and services. The October 28 projections will show how far the Bank now believes the oil shock could carry inflation.
