The Bank of Canada expects to raise its inflation forecast significantly this month as elevated crude oil and refined-fuel prices threaten to spread into the wider economy. Governor Tiff Macklem delivered the assessment during an October 17 media roundtable from the IMF meetings in Bangkok. The central bank's next forecasts will accompany its October 28 policy decision, making the update an important input rather than a decision already taken.

Energy pressure moves beyond the pump

Macklem said continued conflict in the Middle East, restricted shipments and damage to refining capacity have increased the risk that inflation becomes broader and more persistent. Higher fuel costs can affect transport, manufacturing and household bills, but the size and duration of that pass-through remain uncertain. Reuters reported that the Bank is preparing a material upward revision to its quarterly inflation outlook; neither the report nor the Bank's advisory supplied a new numerical forecast.

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The distinction matters because an oil shock can lift headline inflation directly without creating a lasting rise in underlying price pressure. Central banks generally focus on whether the initial increase changes wage-setting, business pricing and inflation expectations. Macklem said the Bank remains anchored to its 2% target and is prepared to adjust policy if needed. That is a statement of readiness, not a commitment to raise rates at the coming meeting.

What markets expect before October 28

As of October 17, money markets were not pricing a rate change for either the October 28 decision or the Bank's final meeting of 2026, according to Reuters. They were, however, pricing about 100 basis points of increases over the following year. Market-implied paths can change quickly as energy prices, inflation releases and economic data move. They show current positioning rather than a forecast issued by the Bank of Canada.

Macklem framed the decision around a narrower question: whether inflation is likely to return toward target on its own or whether higher interest rates will be needed to influence that path. Raising rates can restrain demand and help contain second-round inflation, but it also increases borrowing costs for households and businesses. Holding steady leaves more time to assess the shock, while accepting the risk that persistent price pressure becomes harder to reverse.

A resilient economy with less room for error

The governor said the global economy has remained resilient through the Middle East conflict and the Russia-Ukraine war, although higher costs and tighter financial conditions are testing that resilience. He also pointed to reduced fiscal space among governments, which can limit their ability to cushion another downturn or commodity shock. Those global conditions affect Canada through trade, financing costs and energy markets, but they do not determine the Bank's decision by themselves.

The Bank of Canada's official notice confirms that Macklem held the virtual roundtable in Bangkok and that reporting was embargoed until 9 a.m. Eastern time on October 17. Reuters independently reported the inflation and policy remarks after the embargo lifted. The next concrete evidence will be the Bank's October Monetary Policy Report and rate statement, where policymakers will publish the revised projections and explain whether the energy shock changes the near-term policy path.

Sources

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