Canadian producer prices jump 2% in September, and KPMG now expects an October rate rise

Statistics Canada’s industrial product price index increased 2% in September from the month before¹. It jumped 14.5% compared with a year earlier, the 24th consecutive annual increase¹.

KPMG Canada said it now expects the Bank of Canada to raise interest rates next week, reversing its earlier forecast of a December 2026 hike³. Economists at CIBC World Markets said rising input costs may portend a rate hike and expect the central bank to raise rates at its upcoming rate-setting meeting⁴.

Investors see a roughly 75% chance that the Bank of Canada will raise its benchmark interest rate by 25 basis points². Financial markets are betting on a rate hike at the bank’s 28 October meeting⁵.

Why it matters to investors

The producer price data adds to the case for a rate rise that forecasters have been building^3,4. CIBC’s economists drew a direct link between rising input costs and a possible hike, and September’s 2% monthly jump in industrial prices is the latest sign of those costs^1,4.

Currency markets have moved with the rate expectations. The Canadian dollar extended a daily winning streak as interest rate spreads narrowed². It held near a four-week high as investors stuck to their bets on a rate hike⁶.

Savers are already seeing higher rates on offer. Canada’s top five-year GIC rate climbed to 4.55%⁵. Persistent inflation could push short-term GIC rates higher as well, according to the same report⁵. Savers’ returns on short-term deposits are therefore also tied to the inflation outlook that drives the rate bets⁵.

What to watch

The Bank of Canada’s decision on 28 October is the immediate test of the market’s roughly 75% pricing for a quarter-point move^2,5. The decision will also show whether KPMG’s revised call and CIBC’s forecast were right, and whether the rate bets behind the Canadian dollar’s strength hold^3,4,6.

Investors will also look at what the central bank says about input costs after a 24th straight annual increase in industrial prices¹. Bank of Canada Governor Tiff Macklem spoke about the bank’s outlook on Saturday, and any change in tone at the decision will be read against those remarks⁶.