Bank of Canada minutes reveal Governing Council sees potential for additional rate hikes

• Governing Council weighed two possibilities: maintaining the rate at 2.25% or increasing it to 2.50%
• Members concurred that "there could be a need to increase the policy rate further"
• Future decisions will be made "one meeting at a time"
• The risk that elevated inflation becomes entrenched and widespread has grown
• The higher-for-longer oil scenario from the April MPR has "unfortunately come to pass"
• Oil currently stands roughly US$35 above the assumption in the July MPR
• Even without pass-through effects, the energy shock alone maintains CPI at around 3% for over a year
• CPI is projected at 3.5% by late 2026 and above 3% for most of 2027; it is seen returning to 2% by mid-2028
• Core measures stay close to 2%; CPI excluding gasoline is at 2.2%
• Cost pass-through has been limited so far, though members agreed it will eventually affect consumer prices
• A "diversity of views" existed among members regarding the speed and magnitude of pass-through
• Short-term inflation expectations have risen; long-term expectations remain well-anchored
• The downside risks to inflation have lessened since July
• Some economic slack persists, with the unemployment rate around 6.5%
• Certain members view the labour market as stronger than the headline figures indicate
• 2026 growth has been revised upward to 1%; growth of 2% is expected in 2027 and 2028
• Uncertainty "did not mean inaction"

The minutes make clear this was a pre-emptive rate increase. Core inflation is close to 2%, CPI excluding gasoline stands at 2.2%, and unemployment remains around 6.5%. That is not the typical picture of an economy requiring tighter monetary policy. Still, the Bank of Canada raised rates anyway, with Tiff Macklem acting as a general fighting the previous conflict.

The crucial point is that the energy shock alone sustains CPI near 3% for more than a year, even with no pass-through. Combine that with businesses telling the BOC they intend to transfer more costs, and you have a central bank that is no longer looking past oil. Eight months into the conflict, no one wants to argue that the situation is "transitory."

That said, this central bank is not on autopilot. The argument for holding rates was genuine, trade negotiations with the US have broken down, and business confidence has deteriorated. The next rate decision hinges on oil, and there is a silver lining there as prices have dropped quickly. However, if core CPI ticks up in the next two reports, December becomes a live meeting. If it does not, the Bank can afford to hold steady.