The Bank of Canada’s decision to hold its policy rate at 2.25% on September 2, amid headline CPI stuck at 3.0% year-over-year in August, underpins the 66.5% market-implied probability of at least one hike in 2026. Elevated energy prices from the ongoing Middle East conflict continue to drive the overshoot, with gasoline contributing significantly even as core measures (trimmed mean and median) remain near the 2% target and show limited spillover. The Bank’s post-meeting communications highlighted increased upside inflation risks and a readiness to adjust policy if pressures broaden, shifting trader sentiment despite base-case economist forecasts of steady rates through year-end. Key near-term catalysts include the October 28 Monetary Policy Report and rate decision, where fresh inflation data and growth revisions could alter the balance between supporting recovery and anchoring price stability.