A Bank of Canada survey shows inflation expectations rising, and BMO now leans toward a rate rise next week

A Bank of Canada survey recorded a notable rise in inflation expectations, The Wall Street Journal reported¹. The rise in expectations is tied to elevated energy prices stemming from the Middle East conflict and to the imposition of new tariffs, according to Morningstar³. A second Morningstar update tied it to elevated fuel costs and new tariffs on US and Canadian goods⁵.

The surveys also pointed to strain from trade. Trade tensions are weighing on exports and investment, Yahoo Finance reported, while cost pressures remain widespread and businesses are absorbing part of the additional tariff burden themselves⁴.

The Bank of Canada held its policy rate at 2.25% in September⁹. Since then, Canada’s mortgage market has reported upward pressure on fixed rates⁹.

Why it matters to investors

Economists say the survey results could set the stage for a Bank of Canada interest-rate increase next week, the Journal reported¹. BMO Capital Markets said it is now leaning toward a 25-basis-point rise at that meeting². Forex Factory carried the call under the headline “Bank of Canada to Hike Next Week”, listing Canada’s median, trimmed and common CPI measures alongside it⁶.

Financial markets are betting on a rise next week despite subdued inflation data, The Globe and Mail reported⁸. The paper noted that other central banks, including the US Federal Reserve and the European Central Bank, began raising interest rates last month⁸. A Canadian move would add the Bank of Canada to that group^2,8.

Not every forecaster agrees. Yahoo Finance reported that softer consumer prices bolster the case for the Bank of Canada to hold rates in October⁷. “The Bank of Canada is still facing an uncomfortable balance,” RBC Economics economist Abbey Xu wrote in a note, as the economy remains weak⁷.

What to watch

The decision next week will show which reading the Bank gives more weight: higher expected inflation in its own surveys, or subdued current inflation and a weak economy^1,7. The answer matters for borrowers already facing upward pressure on fixed mortgage rates⁹.

The tariff channel is the other thread. If businesses keep absorbing part of the tariff burden, as the surveys suggest, margins rather than consumer prices take the strain⁴. The surveys tie the higher expectations to fuel costs and tariffs, so those are the two inputs to follow^3,5.