Bank of Canada Faces Rate Hike Pressure as Inflation Expectations Surge

The survey results arrive as central bank officials prepare for next week’s interest rate decision. Governor Tiff Macklem expressed concern that sustained energy price volatility, fueled by Middle East tensions, could broaden inflationary pressures. With September’s consumer-price index at 3.1%—still well above the 2% target—the central bank is weighing whether further rate hikes are required to anchor price stability. Households share this apprehension, with long-term inflation expectations climbing to 3.91% for the five-year horizon.

Trade frictions have compounded the situation, as both nations implemented reciprocal tariffs following the breakdown of August talks. More than half of the surveyed firms intend to pass elevated input costs directly to consumers, citing a need to recover margins amid recovering demand. Despite this, the labor market remains cautious; only 36% of companies plan to expand payrolls over the coming year, and a majority report they still possess spare capacity. With roughly 41% of businesses predicting inflation to stay above 3% for the next two years, the central bank faces a narrowing window to prevent these expectations from becoming entrenched.