Canadian headline inflation is 3.0% and the Bank of Canada says its own core measures are close to 2%, yet bond traders put the odds of a rate hike on October 28 at 41% to 44%. The Bank held its policy rate at 2.25% on September 2 and said that upside risks to its inflation forecast have increased. The question for the next decision is whether an oil-driven headline number outweighs a labour market that lost 41,700 jobs in August.
The two trackers that publish implied probabilities disagree by a few points: rateprobability.com showed a 40.8% chance of a 25 basis point hike on October 5, and bankofcanadaodds.com showed 44% on October 6. Both put the chance of a hold above 55%, and both show tightening building into December.
The Inflation Wedge Is Energy, Not Underlying Prices
Headline CPI rose from 1.8% in February to 3.0% in August while CPI-trim fell from 3.1% in September 2025 to 1.9%, so the gap between the two measures flipped from 1.1 points below core to 1.1 points above it. Gasoline was 22.8% higher than a year earlier in the August release. The Bank put CPI excluding gasoline at 2.2%.
Headline CPI sat 1.1 points below CPI-trim in August 2025 and 1.1 points above it in August 2026. Gasoline prices were 22.8% higher than a year earlier in the August release.
The Bank of Canada statement on September 2 linked the risk directly to oil: the longer high prices persist, "the greater the risk of spillover to the prices of other goods and services." Claire Fan, senior economist at RBC, told BNN Bloomberg that oil is the main driver of the October pricing: "If there's one thing that's really causing the pricing of the October meeting … it's oil prices."
The core measures give the Governing Council room to wait. CPI-median was 2.0% and CPI-trim 1.9% in August, and both have stayed within 0.1 points of target since June. Stephen Brown, chief North America economist at Capital Economics, said the base case is no hike in October, though he expects a close call and expects the Bank to raise its inflation forecasts.
A Labour Market That Is Not Asking for Higher Rates
Employment fell by 41,700 in August after a 75,100 gain in July, and the unemployment rate held at 6.4%. Average hourly wages rose 2.0% from a year earlier to $37.02, the slowest pace since November 2017 outside 2021, according to the Wealth Professional summary of the Labour Force Survey. With headline CPI at 3.0%, that is a real wage decline of about one percentage point.
The Bank said on September 2 that demand for labour remains subdued and that indicators point to continued excess supply. It also cited new U.S. tariffs and Canadian counter-measures as a factor that could feed into consumer prices and make growth prospects more uncertain.
Employment fell in four of the 12 months and averaged a gain of 18,000 a month. The unemployment rate was 6.4% in August and average hourly wages rose 2.0% from a year earlier.
The 12-month record shows why the hiring picture is hard to read. Gains of 87,800 in May and 75,100 in July sit beside losses of 83,900 in February and 41,700 in August, and the average works out to a gain of 18,000 a month.
Why the Fed and Bond Yields Matter More Than the Overnight Rate
The Federal Reserve raised its target range by 25 basis points to 3.75% to 4.00% on September 16, a unanimous 12-0 vote, and its median projection implies a year-end rate of 4.1%. The gap to the Bank of Canada policy rate is at least 150 basis points. Vantage Markets reported that USD/CAD reached 1.4293 on October 5, the highest since April 2025, with the 10-year U.S. Treasury yield near 5.32% and the Government of Canada 10-year near 3.99%, a gap of about 133 basis points.
That yield level matters for borrowers more than the overnight rate does. Randall Bartlett, deputy chief economist at Desjardins, said rising yields are "doing some of the central bank's tightening work," which gives the Bank room to stay patient. Fixed mortgage rates track bond yields rather than the policy rate, so renewals can reprice higher with no Bank of Canada move. For a $400,000 variable-rate mortgage, each quarter-point hike adds roughly $50 to $60 a month, per Money.ca.
What to Watch Before October 28
The September Labour Force Survey arrives October 9, with consensus at a gain of 5,000 jobs and a 6.5% unemployment rate, according to Vantage Markets. September CPI follows on October 19. The October 28 decision comes with updated inflation forecasts, and markets currently price about 36 basis points of cumulative tightening by December 9.