The Bank of Canada announces its rate decision at 9:45 a.m. ET today, and the final Monetary Policy Report of 2026 comes with it. In a Reuters poll of 34 economists conducted October 21 to 23, 19 expect a quarter-point hike to 2.50%, which would be the first increase since July 2023. Money markets priced roughly a 77% chance of a hike, according to Reuters, down from nearly fully priced a week earlier.
The case rests on energy, not on the underlying trend. September headline inflation was 3.1%, with gasoline up 27.8% from a year earlier. CPI-trim, which strips out the largest price swings, was 1.8% and CPI-median was 1.9%, both below the 2% target midpoint.
The labour market points the other way. Canada lost 68,000 jobs in September, after 42,000 in August, and the unemployment rate rose to 6.5%. A hike into that combination is a decision about inflation expectations rather than about current core inflation.
Year-over-year change in the total consumer price index, CPI-trim and CPI-median, monthly, August 2025 to September 2026. The dashed line is the 2% midpoint of the Bank of Canada 1% to 3% inflation target range, and the shaded band lies below the 3% upper bound.
What Headline and Core Are Each Saying
Headline CPI is 1.3 percentage points above CPI-trim, the widest gap in the 14 months charted. A year ago the relationship was reversed: September 2025 headline inflation was 2.4% against CPI-trim of 3.1%.
Energy explains the change. Energy prices rose 19.0% from a year earlier in September and gasoline rose 27.8%, up from 22.8% in August, according to Statistics Canada figures reported by investingLive. CPI excluding gasoline eased to 2.2% from 2.4%. Food bought in stores rose 1.7%, the lowest since May 2024.
Core measures have fallen steadily. CPI-trim was 3.1% in September 2025 and is 1.8% now, and CPI-median fell from 3.1% to 1.9%. CPI-common, which tracks price changes shared across components, eased to 2.4% from 2.6%. By the measures the Bank built to look through one-off moves, underlying inflation is at or below target.
The two readings point to different policy conclusions. Measured by headline inflation, the Bank faces a rate above the 3% ceiling of its 1% to 3% target range for the first time since May, when it reached 3.2%. Measured by core, inflation is 0.1 to 0.2 points under the 2% midpoint and still falling.
Why the Bank May Not Look Through It
Governor Tiff Macklem said in mid-October that the longer the Bank waits, the "harder it is to look through increases in energy prices." National Bank economists Taylor Schleich and Ethan Currie wrote that "this all leans toward the BoC delivering its first increase since July 2023."
The argument is about expectations. In the Bank of Canada Business Outlook Survey, conducted August 6 to September 2, nearly a quarter of firms could not say when inflation would return to 2%, the largest share since the question was introduced. RBC analysis put firms one-year inflation expectations at 3.7% in September and two-year expectations at 3.1%.
Claire Fan, senior economist at RBC, noted that half of surveyed firms plan to pass on cost increases to customers, more than last quarter. Pass-through is the mechanism through which a gasoline shock becomes a core inflation problem, and it is the risk a hike is meant to insure against.
Schleich and Currie said West Texas Intermediate crude was about US$90 a barrel in early September and has risen a further 10% to 20% since. They judged that has likely exhausted the patience of the Bank.
The Labour Market Is the Counterweight
Statistics Canada reported that employment fell by 68,000 in September, and the unemployment rate rose to 6.5% from 6.4%. The employment rate fell to 60.6%, and the participation rate dropped to 64.8%, its lowest since December 1997 outside 2020. Workers aged 15 to 24 lost 48,000 jobs.
Average hourly wages rose 2.3% from a year earlier, to $37.64, which is below 3.1% inflation. Households are losing purchasing power on the gasoline side and facing a softer job market at the same time, and a rate hike adds a borrowing cost to both.
Economists are divided on how much that matters. RBC economists had a base case of no hikes until 2027 as of last week, although Fan said the risks tilt toward earlier moves. David Doyle at Macquarie Group sees 125 basis points of tightening by the end of 2027.
The losses were uneven. Quebec shed 49,000 jobs and British Columbia 20,000, while Alberta added 23,000. Ontario had the highest unemployment rate among the large provinces at 7.0%.
What to Watch at 9:45 and in the Report
The Monetary Policy Report carries the inflation forecast. In July the Bank projected inflation of 2.5% this year and 2.0% next year, and Reuters expects a sharp upward revision to the 2027 figure. A majority of the economists in the Reuters poll also forecast a second hike before the end of March.
Three items in the statement and press conference will matter: how the Bank describes energy pass-through, whether it refers to the neutral rate range, and whether it acknowledges the labour market as a constraint. The U.S. Federal Reserve also decides today, though the Bank of Canada decision carries more weight for Canadian portfolios.
Borrowing costs have moved ahead of the announcement. The five-year Government of Canada yield was 3.58% on October 26, compared with 2.70% on October 31, 2025, according to the Bank of Canada Valet API. Reuters reports that a hike would bring higher bank lending rates and mortgage costs and slower economic growth.