Bank of Canada faces key inflation and survey data before 'live' October 28 rate call

The Bank of Canada will receive fresh economic data next week as it prepares for an interest rate decision on October 28 that could be pivotal. Statistics Canada will release September inflation data on Monday, giving the central bank a look at how energy price pressures are feeding into the wider consumer basket.

RBC assistant chief economist Nathan Janzen expects annual inflation to hold steady around 3 per cent last month, mainly because gasoline prices remained high. He said the October 28 decision will be a "live" meeting, with the door open for the central bank to raise its policy rate, though a hike is not his base case.

Inflation and labour market

Janzen said even if September price data shows signs inflation is spreading beyond fuel, the Bank of Canada will weigh that against softness in the labour market and the wider economy. The central bank also releases its quarterly surveys of businesses and consumers on Monday. Those surveys can show whether firms plan to pass their own rising costs on to consumers.

"Higher energy prices, all else equal, would mean broader inflation pressures would be expected to rise in the future. But if the economy is getting weaker, then there are some offsetting disinflationary forces there as well," Janzen said. "It puts (the Bank of Canada) still in a wait-and-see mode, very, very data dependent."

Data dependent

The inflation report and the two surveys will land before the Bank of Canada's rate decision. The central bank has to judge whether energy-led price pressure is broadening, or whether a softer economy and labour market are doing enough to restrain inflation.

Janzen's view points to a central bank that is not ready to commit either way. The October 28 meeting is live, but the data will decide how live it really is.