Traders now expect a Bank of Canada rate rise this month

A fuel-driven 3.1% inflation print made a rise the favourite, though the case for waiting holds

In one line: Traders price a Bank of Canada rise at 73%, but the bank holds its rate on 28 October because a fuel shock drove the 3.1% print.

Canada's annual inflation rate rose to 3.1% last month as war in the Middle East pushed up petrol prices, Statistics Canada said, according to The Star on 19 Oct. Investing.ca reported the same day that the reading breached the Bank of Canada's target.

Traders read the print as a case for a rise. The Polymarket contract on a 25 basis-point increase (a quarter of a percentage point) climbed from 14% on 13 Oct to a high of 85% on 19 Oct. It now trades at 73%, up 57.9 points in the last 24 hours on Polymarket's own figure. The no-change contract in the same event sits at 22%, and the 50bp-or-more contract trades at 0%. Kalshi prices a 25-point rise at 78% and a hold at 24%, so two independent books broadly agree.

The jump rests on one number, the 3.1% inflation print, and the reporting behind it carries its own caution. Fuel drove the rise, and economists told The Star that high energy prices are still contained, for now. Inflation led by a war-driven fuel shock is the kind a central bank can choose to wait out, since a rate rise adds no oil to the market. The retreat from 85% to 73% suggests some traders have reached the same view.

The call: the Bank of Canada leaves its overnight rate unchanged on 28 Oct, an outcome the 22% no-change price underrates. The case for a rise is that fuel costs spread into wider prices, which would leave the bank little room to wait. The call is wrong if the bank's statement on 28 Oct announces a 25bp rise. A hold would leave Canadian borrowing costs where they are while fuel lifts prices.

Sources