Elevated inflation risks from sustained energy price pressures, with headline CPI holding at 3.0% year-over-year in August 2026 amid Middle East supply disruptions, form the core driver behind the 72% market-implied probability of a Bank of Canada rate hike this year. The policy rate remains at 2.25% following the September 2 hold, but recent communications highlight increased upside risks to the inflation forecast and the potential for pass-through beyond gasoline. Traders are incorporating higher odds of tightening by year-end or into early 2027 as “insurance” moves toward the neutral range, influenced by parallel Fed expectations and Canadian dollar dynamics. Growth uncertainties from U.S. trade tensions and a soft labor market temper the outlook, yet markets price these as secondary to inflation containment needs ahead of the October 28 decision and updated Monetary Policy Report.