Odds of a Bank of Canada rate hike in December rise with oil in the inflation ‘driver’s seat,’ say economists
Here's what economists had to say about inflation and what's next for the Bank of Canada and interest rates
Canada's inflation rate settled at 3% in August, hovering above the Bank of Canada's 2% target but without strong signs of a significant surge that would prompt immediate policy action. Energy prices remaining stable, food prices easing, and services emerging as a watchpoint, economists attributed the inflation control to a mix of factors.
The central bank is caught between persistent headline inflation, elevated oil prices, and the potential downside of U.S. tariffs affecting economic growth. Analysts believe the Bank of Canada can afford to wait for more clarity on trade and energy markets, while some predict a rate hike once uncertainties subside. Andrew DiCapua, principal economist at the Canadian Chamber of Commerce’s Business Data Lab, highlighted stable oil prices and easing food pressures, noting that services, especially travel-related segments, contributed to some of the upward movement.
The analyst maintains that inflation remains contained, enabling the Bank to keep rates steady while staying vigilant for renewed price pressure. The biggest risk cited is gasoline prices, with other economists stressing that headline inflation shouldn't be isolated but viewed through the lens of its underlying components. While the Bank may stay patient, markets are cautioned against interpreting the August reading as a major shift in the Canadian rate outlook, with further inflation reports needed to provide clearer guidance.
CIBC Capital Markets expects the Bank to maintain rates in October, anticipating a potential resumption of trade talks before the year's end and eventual tariff unwinding in 2027. The base case assumes a higher inflation path, with CIBC bringing forward its call for a first rate hike to the first quarter of 2027, though rates are not projected to exceed its 2.75% neutral estimate.
The recovery of the economy, delayed by recent tariff escalations, faces upside risks if trade relations worsen, with Canadian CPI inflation forecast at 2.8% in 2026 and 1.8% in 2027, and real GDP growth at 0.9% this year and 1.6% in 2027.
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