Macklem says the Bank of Canada will lift its inflation forecast sharply — and put an Oct. 28 rate hike squarely on the table

A forecast upgrade is coming

The Bank of Canada expects to raise its quarterly inflation forecast significantly this month because of persistently high crude oil and petroleum product prices, Governor Tiff Macklem said Saturday, according to Reuters.

The new forecasts will feed directly into the Bank's rate decision on Oct. 28, just 11 days away. Macklem spoke on a conference call with journalists from Bangkok, where central bankers are confronting the same question: whether the energy-price shock is spilling into the broader economy.

"With the (Middle East) conflict ongoing, shipments still curtailed and refinery capacity damage, the risk that inflation broadens and becomes more persistent has gone up," Macklem said.

He framed the Oct. 28 decision in unusually direct terms: the Bank will ask itself whether inflation is likely to drift back toward target on its own — or whether the Bank will "have to raise interest rates to influence the path" of inflation back to 2 percent.

Markets bet the hike waits — but the repricing has begun

Money markets are not pricing any change at the Oct. 28 decision or at the Bank's final decision of the year in December, Reuters reported Saturday. But they are now pricing roughly 100 basis points of increases over the course of next year — a steady drumbeat of tightening that would have been unthinkable a few months ago.

That follows the governor's own warning on Friday that the Bank has been "looking through" higher energy prices, "but the longer this goes, the harder that gets," as Serious Pick reported. The Saturday remarks take the shift one step further: from watching to warning.

Macklem also flagged that the global economy's resilience is being tested by higher costs and tighter financial conditions, and that governments have less fiscal room to cushion the blow — a warning that applies directly to Ottawa ahead of the Nov. 4 federal budget.

The Canadian angle

For Canadian households, the math is blunt. Headline inflation has been running above the Bank's 1%-to-3% target range for three straight months, driven by fuel costs — Statistics Canada's September report showed gasoline prices up 9.1 percent in a single month. A hike would push variable-rate mortgages and lines of credit higher just as families head into winter.

The last full data drop before the decision lands Monday, Oct. 19: Statistics Canada releases September CPI at 8:30am ET, and the Bank publishes its business and consumer surveys at 11:30am. Those surveys, plus the upgraded forecast Macklem previewed Saturday, will set the tone for Oct. 28.