Most Canadians expect inflation to climb as the Bank of Canada weighs an October rate hike
Canadians are bracing for higher prices even as their faith in the economy and the housing market fades. That combination complicates the Bank of Canada's next interest rate decision and the conversations mortgage brokers are having with clients.
The Bloomberg Nanos Canadian Confidence Index fell to 50.45 in the four weeks ended Oct. 2, from 51.80 a month earlier, according to Nanos Research.
A reading of 50 marks the line between net optimism and net pessimism, so consumer confidence now sits at roughly neutral. That is well below the index's long-run average of 54.67.
A separate Nanos poll for Bloomberg News, conducted Sept. 27 to 29, found that 54% of Canadians expect annual inflation to be above the current 3% a year from now. Only 7% expect it to ease.
"The result is a public mood marked less by alarm than by caution: households are holding steady, yet doubts about Canada's economic direction continue to cap enthusiasm," Nik Nanos, chief data scientist at Nanos Research, said in the report.
Housing expectations weaken as consumer confidence stalls
The weakness shows up mainly in forward-looking views. The index's expectations gauge tracks sentiment on the economy and real estate prices, and it dropped to 46.75 from 48.76.
Just 28.54% of respondents expect home values in their neighbourhood to rise over the next six months, down from 32.67% four weeks earlier.
Personal finances are holding up better. The pocketbook gauge covers finances and job security, and it slipped only to 54.15 from 54.83.
Still, 39.21% of Canadians said they are worse off than a year ago, compared with 10.60% who feel better off.
Sentiment is weakest in British Columbia, at 44.52. In Ontario, the reading fell to 48.53 from 52.42.
Among renters, confidence dropped to 48.51 from 54.27 over the same four weeks.
Aled ab Iorwerth, deputy chief economist at CMHC, says rising bond yields, inflation concerns, and trade-related uncertainty are making the outlook for interest rates and housing activity increasingly difficult to predict. https://t.co/mkip7w5Cba
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 6, 2026
What do rising inflation expectations mean for a Bank of Canada rate hike?
Inflation expectations matter because they can fulfil themselves. If households build higher prices into wage demands or bring purchases forward, the central bank's job gets harder.
Governor Tiff Macklem has warned that moving slowly carries its own cost. "Two things probably have to happen if you're too slow: One is, you're going to have to raise rates very quickly," he said in a recent speech in Halifax.
The policy rate has held at 2.25% since October 2025. Traders in overnight swaps put the odds of a hike at the Oct. 28 meeting at about one in three. Meanwhile, a growing number of major forecasters now expect an October increase.
Not every forecaster agrees. Helen Lao, an economist at Toronto-based CIBC Capital Markets, argues that Canada's inflation is largely driven by fuel prices. "In Canada, inflation is much less broad-based," she wrote in a report arguing the case for a Canadian hike is weaker than the Fed's.
For brokers, the rate debate comes down to the choice between fixed and variable. A quarter-point hike would flow straight through to the prime rate, now 4.45%.
Leah Zlatkin, a Toronto-based licensed mortgage broker and LowestRates.ca expert, said the gap between fixed and variable pricing is complicating client conversations.
"With variable rates still coming in below comparable fixed rates, I'm seeing more interest from clients who are weighing whether the lower rate is worth the added uncertainty," she said.
The Bank of Canada will publish its quarterly business and consumer surveys on Oct. 19. They will give a fresh read on household inflation expectations nine days before the rate decision.
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