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# Canada Hikes for the First Time Since 2023 to Curb Energy-Driven Inflation
- URL: https://financeherald.com/canada-hikes-for-the-first-time-since-2023-to-curb-energy-driven-inflation/
- Published: 2026-10-28T15:06:17.000Z
- Updated: 2026-10-28T15:06:17.000Z
- Description: The Bank of Canada raised its policy rate 25 basis points to 2.5%, its first hike since 2023, betting that early action stops a gasoline price shock from spreading into broader inflation.
- Author: Finance Herald Staff
- Tags: Markets & Economy, News

The Bank of Canada on Wednesday raised its target for the overnight rate by 25 basis points to 2.5%, the first [hike](https://financialpost.com/news/economy/bank-of-canada-hikes-interest-rate-october-28?ref=financeherald.com) since 2023\. The Bank Rate moved to 2.75% and the deposit rate to 2.45%.

The decision put Canada on the opposite side of the monetary-policy divide from the United States, where the Federal Reserve was widely [expected](https://apnews.com/article/inflation-warsh-interest-rates-federal-reserve-c06793b0c50641444701d5d098ccc2c8?ref=financeherald.com) to keep interest rates unchanged at a meeting later the same day.

Canada's CPI inflation has been around 3% since April and is expected to rise to about 3.5% by the end of the year. It ticked up to 3.1% in September after holding at 3% in July and August, with energy prices up roughly 19% year over year.

The split inside those figures is the point. Excluding gasoline, inflation was 2.2% in September, and measures of core inflation remain close to 2%. Governing Council still moved, saying in its [statement](https://financialpost.com/news/economy/bank-of-canada-raises-interest-rates-official-statement-oct-28?ref=financeherald.com) that it increased the policy rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services.

### A pre-emptive move, not a hot economy

The Bank is not describing a demand boom that has already pulled prices across the board. Unemployment has been around 6.5% for several months. Canada's GDP grew 3.3% in the second quarter, and recent indicators point to growth of about 2% in the third quarter, stronger than the July report expected. The Canadian economy is still expected to grow 1% in 2026, then 2% in 2027 and 2028.

What the Bank is trying to head off is pass-through. High fuel prices raise production and transport costs, and Bank surveys suggest cost pass-through will increase over the next year. Roughly half of firms in the Bank's Business Outlook Survey said they plan to pass higher fuel costs on to consumers by the end of the year. Near-term inflation expectations have risen, while longer-term expectations remain well anchored.

Economists and central bank officials put the neutral rate at around 2.75%. Wednesday's move to 2.5% therefore sits just below that estimate, a modest tightening rather than a lurch into restrictive territory. The Canadian dollar has held around 71 US cents. The bet is that acting now keeps a gasoline shock from becoming a broader price problem.

### A higher inflation path, then a return to 2%

CPI inflation is expected to average 3% in 2027, which the Bank says is a percentage point above its July projection, then come down to 2% in the middle of 2028\. That revision is the cost of energy staying high for longer. Global GDP growth was revised up slightly to 3.1% in 2026, with 3.2% in 2027 and 2028 left unchanged.

The backdrop is not easy money. The Bank said global financial conditions have tightened, advanced-economy sovereign yields are higher, and equity and credit markets have been volatile on uncertainty about AI. Those tighter conditions are already doing some of the work a larger hike would have done.

### One meeting at a time

Forward guidance was deliberately thin. The [text](https://www.bnnbloomberg.ca/business/economics/2026/10/28/text-of-the-bank-of-canadas-latest-policy-interest-rate-decision/?ref=financeherald.com) of the decision said there could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully. The governor said future decisions will be taken one meeting at a time.

That leaves the next step hanging on whether energy costs leak into other goods and services, not on whether today's core numbers already look hot. Headline inflation near 3% and heading toward 3.5% is the political and market fact. Core near 2% is the economic one. The 25-basis-point increase is an attempt to keep those two from merging.