Recent Middle East tensions sustaining elevated energy prices have kept Canadian headline inflation near 3% through August 2026, lifting upside risks to the Bank of Canada’s forecast even as core measures hover close to 2%. This dynamic, alongside firmer growth data, has shifted market-implied odds toward at least one 25-basis-point hike by year-end, producing the current 66.5% consensus for a 2026 tightening move. Traders weigh these inflation pressures against downside growth risks from U.S. tariffs and a still-soft labor market, with the October 28 policy meeting and accompanying Monetary Policy Report serving as the next key test of whether the Governing Council will begin normalizing the 2.25% policy rate or maintain its patient stance.