CIBC challenges the consensus on a Canadian hike
After the Federal Reserve lifted rates by a quarter point in September, wagers grew that the Bank of Canada would follow with its own increase on October 28. Fresh analysis from CIBC Capital Markets cautions mortgage brokers against assuming that outcome is guaranteed. In a report dated October 6, Toronto-based CIBC Capital Markets economist Helen Lao contended that although both countries are absorbing the same energy shock tied to the Iran conflict, the nature of their inflation troubles differs.[S1][S2][S3]
Lao argued that once the headline decision is set aside and its underlying drivers examined, the rationale for a matching Canadian increase right now becomes considerably thinner. She described Canadian inflation as concentrated and mostly tied to fuel, whereas the American version is wider-ranging and more persistent. That view cuts against a consensus in motion: UBS, Manulife, Oxford Economics and Scotiabank have moved their projections earlier, and more major forecasters now anticipate an October move from the present 2.25% overnight rate.[S1]
Why gasoline, not demand, drives Canada's inflation
Canadian consumer prices climbed 3% year over year in August, roughly a full point above the Bank of Canada's 2% objective. CIBC attributes about 0.8 points of that excess to gasoline prices running above normal, with a further 0.3 points coming from knock-on effects in airfares and travel tours. Lao noted that Canadian inflation is far less widespread: just 38% of the country's 55 major CPI components are increasing by more than 3% annually, six points higher than the 1999–2019 norm.[S1]
Across the border, roughly half of the 100-plus categories in personal consumption expenditures, the gauge the Fed favours, exceed that threshold. Gasoline accounts for 4% of Canada's CPI basket versus about 2% of US PCE. According to the report, easing gasoline prices could prove a more substantial remedy for headline inflation in Canada. In the US, tariffs and artificial intelligence demand account for roughly 0.9 points of the 1.4-point overshoot. Lao added that the tariff shock has weighed far more heavily on American consumers than on Canadians.[S1]
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What a Bank of Canada rate hike would mean for brokers
CIBC anticipates one additional Fed increase, with the report suggesting Canada might follow in 2027. The report characterised the timing as a made-in-Canada matter, shaped both by Canada's more favourable starting position on underlying inflation and by possible growth headwinds from elevated US tariffs and trade uncertainty ahead. The central bank itself seems less inclined to wait. Governor Tiff Macklem, in his recent Halifax speech cautioning that growth could be cut in half, said that if you're too slow, two things probably have to happen, one being very rapid rate increases.[S1]
Royal Bank of Canada economists Nathan Janzen and Claire Fan, who view the Bank's next step as an increase rather than a reduction, called the decision finely balanced. They noted that incoming data will shape the October call, with BoC communications still pointing to a close call. For variable-rate clients, a quarter-point rise would flow straight into the prime rate, currently 4.45%. Fixed-rate borrowers already face pressure as lenders reprice alongside climbing bond yields. The next signal comes October 19, when Statistics Canada releases September inflation figures. UBS projects the annual rate will hit 3.3%.[S1]
