RBC Economics expects Canadian September inflation to hold at 3% and the Bank of Canada's Q3 Business Outlook Survey to show higher short-term inflation expectations. Both releases arrive ahead of the central bank's Oct. 28 decision. RBC expects the bank to stay on hold through the rest of 2026.
Canadian inflation data and the Bank of Canada's Q3 Business Outlook Survey, both due Monday, will show whether energy-driven price pressures are broadening across the economy, according to RBC Economics. The releases feed into the bank's next interest rate decision on Oct. 28.
Policymakers are wary that high oil prices could spill beyond gasoline into non-energy components, RBC says. At the same time, the economy remains soft: jobs declined in August and September, and the unemployment rate has plateaued around 6.5% over the last three months.
September CPI seen steady at 3%
RBC expects the headline Consumer Price Index to hold at 3% year-over-year in September for a third consecutive month. Energy inflation likely accelerated as gasoline and furnace oil prices rose significantly from August, while food inflation is expected to keep moderating.
Core inflation, which excludes food and energy, is expected to have edged down to 1.8% from 2.1% in August. RBC's diffusion index has not pointed to problematic broadening so far: the share of the consumer basket with annual price growth above 3% remained narrow at 35% in August, well below 54% a year ago.
Business survey may show higher inflation expectations
The same index for industrial production prices has already pointed to a concerning spread, RBC says. Still, price increases have a long way to go before they reach consumer prices, and energy prices will need to stay high in between.
Business sentiment weakened in Q2 on higher fuel costs and trade uncertainty. The Q3 survey period coincided with rising oil prices and new U.S. Section 338 measures imposed on Aug. 22, which RBC expects to have weighed further on business outlooks.
RBC also expects another uptick in firms' short-term inflation expectations, with medium- to longer-term expectations staying relatively better anchored near the 2% target. Given the trade-off between inflation and growth risks, RBC expects the Bank of Canada to remain on hold through the rest of 2026.
Source: ActionForex (RBC Economics)
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