Bank of Canada faces pivotal rate decision after key data releases next week

OTTAWA — The Bank of Canada will receive key inflation and survey data next week as it weighs a potential interest rate increase at the end of the month.

Statistics Canada will release its September inflation report on Monday, giving the central bank a look at how energy price pressures are influencing other parts of the consumer basket.

RBC assistant chief economist Nathan Janzen says he expects the annual inflation rate held steady around three per cent last month, mostly because of persistently high gasoline prices.

READ MORE: Bank of Canada increases repo operations to ease pressure on key rate

READ MORE: KPMG Canada says Bank of Canada will need to 'feed the beast' with one rate hike

Janzen says the Bank of Canada’s upcoming decision on Oct. 28 will be a “live” meeting, where the door is open for the central bank to raise its policy rate, but a hike is not his base case scenario.

Even if the September price data shows signs inflationary pressures are spreading past the gas pumps, Janzen says the central bank will be weighing that against signs of softness in the labour market and wider economy.

The Bank of Canada will also release its own quarterly surveys of businesses and consumers on Monday, which can give the bank a better sense of whether firms are planning to pass their own rising costs on to consumers.

“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,” Janzen says.

“It puts (the Bank of Canada) still in a wait-and-see mode, very, very data dependent.”

The central bank's decision comes as fixed mortgage rates have been rising due to climbing bond yields. Yadude Books reported earlier this month that the lowest five-year fixed mortgage rate has increased by 40 basis points over the past month.

Other forecasters have also weighed in on the central bank's path. In early October, KPMG Canada said the Bank of Canada would need to 'feed the beast' with one rate hike, forecasting a 25-basis-point increase in December.

The bank's policy rate has been held steady in recent months as it monitors economic data.

The new data arrives as the bank prepares for what Janzen described as a pivotal decision.

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