The Bank of Canada published a summary of Governing Council deliberations explaining its October 28 decision to raise the policy rate from 2.25% to 2.5%. Members judged that prolonged energy price pressures and an improved growth outlook had increased the risk that inflation would become persistent and spread across goods and services.
Higher energy prices had kept headline inflation around 3% since April, while core measures remained near 2%. Businesses had largely absorbed rising input costs, but surveys and historical experience pointed to greater transmission to consumer prices over the following year. The October forecast projected inflation would reach 3.5% at the end of 2026 and remain above 3% through much of 2027 before returning to the 2% target by the middle of 2028. Members differed on how quickly and extensively higher costs would feed into consumer prices.
The growth forecast was revised up to 1% for 2026, with growth of 2% expected in both 2027 and 2028, gradually absorbing remaining economic slack. Members considered holding the policy rate at 2.25%, citing inflation still concentrated in energy and related services, spare economic capacity and the expected drag from new U.S. tariffs. They ultimately judged that the stronger growth outlook would provide less downward pressure on prices to offset rising costs. Further rate increases could be needed, but uncertainty about the outlook warranted taking decisions one meeting at a time.