Elevated inflation risks from sustained high energy prices amid Middle East geopolitical tensions represent the main driver behind the 71.5% market-implied probability of a Bank of Canada rate hike in 2026. Headline CPI held at 3.0% year-over-year in August, with limited passthrough evident in core measures near 2%, while the Bank left its policy rate unchanged at 2.25% on September 2 and flagged upside inflation risks alongside trade-related growth uncertainty. Bond markets now price roughly even odds of a 25-basis-point move at the October 28 meeting, contrasting with most economist forecasts that anticipate holds through year-end before potential tightening in 2027. Traders appear to weigh the possibility of earlier policy normalization if oil-driven pressures broaden or if other central banks tighten further, against downside growth risks from U.S. tariffs.