The Bank of Canada could hike next week — markets just went from "maybe" to "almost certain"

The market's read on the Bank of Canada's Oct. 28 decision has flipped in a matter of days. By early Oct. 20, markets were assigning nearly an 85 per cent probability to a quarter-point rate increase, according to LSEG data reported by Reuters — up from roughly 35 per cent on Friday. The move came after Governor Tiff Macklem used weekend comments to warn that oil-driven inflation is no longer something the bank can simply look past. For Canadian borrowers, the possibility of the first rate hike in a year is suddenly very real.

"There's no resolution in sight"

Macklem's warning centered on the collision between surging energy prices and the bank's July forecasts. When the bank published those projections, it expected Brent crude to average around US$75 a barrel in the third quarter; Brent is now trading around US$110 and West Texas Intermediate near US$101, the Globe and Mail reported. "If oil prices stay around $100, we expect inflation to gradually drift up from where it is today: 3 per cent," Macklem said, according to Bloomberg. He pointed to the Middle East: "There's no resolution in sight for the conflict," citing Houthi missile strikes on Saudi Arabia, the closure of the Strait of Hormuz to tanker traffic, and damaged refineries in Russia and Ukraine. "Our beacon is our 2% inflation target, and we are committed to keeping inflation close to target over time. We are prepared to adjust monetary policy as needed," he added, as quoted by Reuters.

The inflation print that wasn't enough

September's inflation data, released Monday by Statistics Canada, gave the bank a mixed picture. Headline CPI rose to 3.1 per cent from 3.0 per cent in August — just below economists' 3.2 per cent forecast — driven by a 6.1 per cent monthly jump in gasoline prices. But the details complicated the hawkish case: core measures stayed soft, with CPI-trim easing to 1.8 per cent and CPI-median to 1.9 per cent, both below the 2 per cent target midpoint, according to DailyForex. Excluding gasoline, inflation actually slowed to 2.2 per cent. Scotiabank still expects a 0.25 per cent increase on Oct. 28, arguing one soft monthly reading doesn't resolve the underlying risk — but the cooler core print did ease hike expectations slightly.

The Canadian angle: mortgage pain meets oil money

Macklem acknowledged the double edge for Canada: "Higher prices are supporting growth through energy exports, incomes, government revenues and investment while also pushing inflation up," Bloomberg reported. On Bay Street, the uncertainty showed. Canada's S&P/TSX composite fell 0.69 per cent on Monday to 35,928.63, the Canadian Press reported, with financials and mining stocks leading the decline even as energy names gained on crude. The Canadian dollar traded at 70.94 US cents, up from 70.65 Friday. And the bank's own surveys show businesses now expect inflation to reach 3.7 per cent in the third quarter of 2027, up from 3.2 per cent previously — the kind of expectations number that, Macklem has argued, can make pre-emptive hikes necessary. The question for Oct. 28, as he put it: whether inflation will come back toward 2 per cent on its own, or whether the bank will "have to raise interest rates to influence the path."