The Bank of Canada raised its overnight rate 25 basis points to 2.50% on October 28, and the decision reads differently depending on which inflation number a reader starts with. Statistics Canada reported on October 19 that the consumer price index rose 3.1% in September from a year earlier, up from 3.0% in August. Excluding gasoline, inflation was 2.2%, down from 2.4%.
One Price Is Doing Most of the Work
Gasoline prices were up 27.8% from a year earlier in September, after a 22.8% increase in August. Energy overall was up 19.0%, and fuel oil and other fuels rose 57.8%. Transportation prices rose 8.4%.
The categories households buy most often are running well below the headline. Food purchased from stores rose 1.7% in September, down from 2.8% in August, and grocery price growth was the slowest since May 2024. Shelter rose 1.8%, up from 1.5%, and rent rose 2.8%.
The result is a headline number that reflects one volatile input more than broad pricing behaviour. That is the central fact for reading the Bank of Canada decision.
The Bank Is Hiking Into Better Growth, Not Worse
The case for acting rests on the economy being stronger than the Bank of Canada expected in July. Second quarter GDP growth was 3.3%, and recent indicators point to about 2% in the third quarter. The unemployment rate has been around 6.5% for several months, and the Bank of Canada still sees some excess supply in the economy.
The outlook is mixed rather than strong. The Bank of Canada projects growth of 1% in 2026 and 2% in both 2027 and 2028, with new U.S. tariffs expected to slow the fourth quarter. It expects CPI to reach about 3.5% by year-end, average 3% in 2027, and return to 2% around the middle of 2028.
The Bank of Canada gave its reason directly: it raised rates to reduce the risk that high energy prices spread broadly to other goods and services.
Headline CPI has risen from 1.73% in July 2025 to 3.09% in September 2026, and it has stayed within 0.25 points of 3% every month since April.
Monthly headline CPI is shown at two decimal places from the WOWA.ca table of Statistics Canada data. The September reading was released Monday, October 19, and the Bank of Canada last cut its policy rate to 2.25% on October 29, 2025.
What the Statement Left Open
The statement says there could be a need to increase the policy rate further, and that the Governing Council will proceed carefully. That is a conditional signal, not a schedule. The Bank of Canada describes the Middle East conflict, now in its eighth month with no clear resolution, as a key source of uncertainty.
The pass-through question decides the path. Businesses have mostly absorbed higher input costs so far, according to the Bank of Canada, but it expects pass-through to rise over the next year. Near-term inflation expectations have risen, while longer-term expectations remain well anchored.
The Bank of Canada is effectively wagering that a gap between 3.1% and 2.2% closes from below, through spreading costs, rather than from above, through lower energy prices. If energy prices fall instead, the gap closes from above and the hike will look early. The Federal Reserve held at 3.75% to 4.00% on October 28 in a 10 to 2 vote, with both dissenters favouring a hike, so the question is live on both sides of the border.