Bank of Canada: Inflation-growth tradeoff keeps policy on hold – RBC

Royal Bank of Canada economists Claire Fan and Abbey Xu have weighed in ahead of the Bank of Canada's upcoming policy decision on October 28. The pair highlight the ongoing tradeoff between inflation and growth in Canada, as the country's economy remains soft while energy-driven inflation persists. They expect this contentious balance of risks to keep the Bank of Canada from taking action through the remainder of 2026.

Canadian inflation data and the Bank of Canada's Q3 Business Outlook Survey on October 27 will be closely monitored for signs of whether energy price pressures are spreading across the economy. Policymakers are concerned that high oil prices could extend beyond gasoline into other non-energy sectors and potentially fuel rising inflation expectations among businesses and consumers.

However, the ongoing economic slowdown—marked by slowing GDP growth, a decline in consecutive job losses, and a stagnant unemployment rate—tempers these inflation risks. The economists continue to anticipate a contentious tradeoff between inflation and growth risks to keep the Bank of Canada on hold until at least the end of 2026.