Bank of Canada rate hike odds are leaning toward another increase in October, with BankofCanadaOdds pricing showing a 63% probability of the policy rate rising to 2.50%, as Canada heads into a key CPI report and U.S. inflation keeps a Federal Reserve hike in play next week.

The Bank of Canada held its overnight rate at 2.25% on September 2, but said upside risks to inflation had increased as high energy prices persisted and new U.S. tariffs and Canadian counter-measures added uncertainty to the outlook.

Current BankofCanadaOdds pricing for the October 28 meeting shows:

Canada Inflation Now Holds the Key

Statistics Canada will release August CPI on September 14, making it the next major domestic inflation reading ahead of the Bank’s October decision.

Canadian inflation has been hovering around 3%, largely because of higher gasoline prices. In July, inflation excluding gasoline was 2.2%, while the Bank said core inflation measures remained close to 2%. That distinction matters.

The Bank has so far seen little evidence that higher energy costs are spreading broadly through the economy. But Governor Tiff Macklem warned that the longer oil prices and refinery margins stay elevated, the greater the risk of those pressures feeding into other prices.

A hotter August CPI report, particularly in underlying inflation, would strengthen the case for 2.50%. A softer reading could pull expectations back toward another hold.

U.S. CPI Keeps the Fed in Play

U.S. consumer prices rose 0.4% in August from July, while annual inflation held at 3.4%. Core CPI increased 0.3% month over month and 2.4% year over year, with gasoline a major contributor.

The report pushed markets further toward expecting a Federal Reserve rate hike at its September 15–16 meeting. Reuters reported that hike expectations rose sharply after the CPI release, although pricing remained fluid through the session.

The Fed decision comes just two days after Canada’s CPI release.

Why the BoC Is Watching the Fed

The Federal Reserve does not determine Bank of Canada policy, but higher U.S. rates can influence bond yields, financial conditions and the Canadian dollar.

For the BoC, though, domestic inflation remains the bigger test.

The Bank said in September that Canada’s economy and inflation were evolving broadly in line with its July forecast, but also noted that upside inflation risks had increased.

The next Bank of Canada decision is scheduled for October 28, alongside a new Monetary Policy Report.

For now, the odds lean toward a hike.