Monday Market Minute | Oct 26, 2026

Markets price a Bank of Canada hike after Macklem flags a higher inflation forecast, as Brent settles at a six-month high — with the decision on Wednesday

What Moved

September CPI, released October 19, came in at 3.1%, up from 3.0% in August. Gasoline was up 27.8% on the year; excluding gasoline, inflation eased to 2.2% from 2.4%, and food from stores slowed to 1.7%. The Bank of Canada's preferred core measures stayed below 2%, with CPI-trim at 1.8% and CPI-median at 1.9%. Over the weekend before the release, Governor Tiff Macklem told reporters at the IMF and World Bank meetings in Bangkok that the Bank expects to raise its inflation forecast on October 28, against a July oil assumption of $75: "If oil prices stay around $100, we expect inflation to gradually drift up from where it is today: 3 percent." Swap markets moved to about 80% odds of a quarter-point hike by the afternoon of October 19, from about 35% on October 16. The GoC 2-year yield rose to 3.33% on October 23 from 3.21% a week earlier, and the Canadian dollar firmed to 1.3993 per US dollar from 1.4154. The Bank's Q3 surveys, out the same day, showed the Business Outlook Survey indicator at −0.33 (Q2: −0.38) and consumers' five-year inflation expectations at 3.91%, up from 3.39%. About three-quarters of the business interviews were done before Canada–US talks broke down on August 21. August retail sales rose 1.2% to $74.6 billion, with gains in all nine subsectors, and Statistics Canada's advance estimate for September is +0.7%. Brent futures settled at $116.72 on October 23, the highest settlement since April 29, as attacks on shipping in and around the Gulf continued. On the same day, a new US proclamation refined the Section 338 tariff list, effective October 30: plywood, some paper products and certain machinery come off, and certain valves, carpets and waste products go on. The tariffs still apply regardless of CUSMA origin. The TSX closed the week at 35,788.18.

Why It Matters

The headline and the core measures are telling different stories, and the Bank has said which one it is watching. Macklem framed the decision around inflation a year out, not today's prices, and consumers' longer-term expectations moving toward 4% is the measure that speaks to that. When an energy shock has started to show up in expectations rather than only in the pump price, central banks have tended to respond to the expectations. That is the reasoning the market is now pricing.

Markets are ahead of forecasters. RBC still expects no hike until 2027, while Desjardins argues the Bank "can no longer look through" energy prices. A hike would be the first change after seven straight holds at 2.25%. For private credit funds that lend at floating rates tied to prime, a higher policy rate lifts coupons and, with them, the debt-service load on borrowers. Interest coverage at the borrower level is the figure that shows whether a loan book can carry it. For private mortgage and real estate investors, the rise in 2-year yields has already reached fixed mortgage rates, which CREA named as the cause of September's housing slowdown.

The tariff change narrows the list rather than ending the dispute. For businesses with cross-border exposure, the effect remains sector by sector.

Signal to Watch

Wednesday, October 28: the Bank of Canada's decision and October Monetary Policy Report, where the new oil assumption and inflation projection matter as much as the rate itself. The Federal Reserve decides the same day, at 3.75–4.00%. Thursday brings August payroll employment, and Friday brings August GDP by industry and the Section 338 list changes. After that: the US midterms on November 3 and Budget 2026 on November 5.