Bank of Canada eyes fresh inflation data ahead of rate decision

OTTAWA · The Bank of Canada will receive new economic data on Monday as it considers a potential interest rate change later this month. Statistics Canada will publish September inflation figures, providing insight into how energy costs are affecting consumer prices. Economists polled by Reuters expect the annual inflation rate to have increased to 3.2 per cent last month from three per cent in August. RBC assistant chief economist Nathan Janzen forecasts it held steady at three per cent, driven by high gasoline prices linked to the conflict in Iran.

Janzen described the Bank of Canada's October 28 meeting as a "live" one, meaning a rate increase is possible though not his main expectation. He noted the key uncertainty is whether expensive energy will push up prices elsewhere in the economy. "We know that energy prices are high. What we don't know yet is the extent that those higher energy prices have or are going to spill over to broader inflation pressures," Janzen said. BMO economists Benjamin Reitzes and Shelly Kaushik also project a slight rise in inflation, citing sharp increases in gas and heating oil prices.

The central bank has indicated it would initially overlook a temporary surge in war-related energy costs but has warned of broader inflationary risks if oil prices stay raised. Such a scenario could force it to raise its benchmark interest rate from the current 2.25 per cent. However, Reitzes and Kaushik said they anticipate the Bank of Canada's core inflation measures will be unchanged for September and are "not anticipating any red flags in this report." The decision will also consider recent economic weakness, including a loss of 68,000 jobs in September and a renewed trade dispute with the U.S.

READ MORE: Bank of Canada expected to raise interest rate amid oil price surge

READ MORE: Bank of Canada governor warns high oil prices will push inflation forecast higher

Janzen said the bank must balance the inflationary push from energy against disinflationary forces from a softening economy. "Higher energy prices -- all else equal -- would mean broader inflation pressures would be expected to rise in the future. But if the economy is getting weaker, then there are some offsetting disinflationary forces there as well," he said. He concluded this leaves the central bank in a "wait-and-see mode -- very, very data dependent." Market expectations for a rate hike this month fell after the poor jobs data, with odds around 34 per cent last Friday.

Also on Monday, the Bank of Canada will release its quarterly surveys of business and consumer sentiment. These will help gauge whether companies intend to pass their higher costs on to customers. Janzen said the surveys on inflation expectations and business confidence will inform the bank's outlook for future price pressures. RBC's current forecast is for no interest rate increases this year, with a period of modest tightening beginning in 2027.

With files from The Canadian Press, BNN Bloomberg and The Globe and Mail