Royal Bank of Canada economists Claire Fan and Abbey Xu assess upcoming Canadian inflation data and the Bank of Canada’s Q3 Business Outlook Survey ahead of the Oct. 28 policy decision. They highlight persistent energy-driven inflation versus a still-soft economy, and expect this contentious balance of risks to keep the Bank of Canada on hold through the rest of 2026.

BoC seen staying uncomfortably on hold

“Canadian inflation data and the Bank of Canada’s Q3 Business Outlook Survey on Monday will be watched closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy.”

“These releases will serve as key inputs for the BoC’s next interest rate decision on Oct. 28, as policymakers are wary that high oil prices could spill beyond gasoline prices into non-energy components and/or feed into rising business and consumer inflation expectations.”

“Inflation risks, however, must be balanced against a gradually improving economy that remains soft.”

“Progress has been choppy—GDP growth is set to slow in the second half of 2026 from the stronger pace in Q2, jobs have declined consecutively in August and September, and the unemployment rate has plateaued around 6.5% over the last three months after falling in the prior year.”

“For now, we continue to expect a somewhat contentious trade-off between inflation and growth risks to keep the BoC uncomfortably on hold through the rest of 2026.”