Odds of a December Bank of Canada Rate Hike Are Rising, Here's Why

By Mudit Chhura  |  Co-Founder, IndiBrick  |  Read Time: 7 Mins

Just two weeks after the Bank of Canada held its policy rate for a seventh straight decision, the conversation has already shifted. Economists are no longer debating whether the Bank might cut rates before year end, they are increasingly debating whether it will need to hike instead, and the reason has almost nothing to do with the domestic economy.

The culprit is oil. Global crude prices have surged sharply in September, and that single factor is now doing more to shape the outlook for Canadian mortgage rates than almost anything else on the calendar between now and the Bank's final decision of the year.

What's Actually Driving the Shift

Canada's annual inflation rate held at 3 percent in August, sitting at the very top of the Bank of Canada's target range of 1 to 3 percent. On its own, a steady reading might have been reassuring. But the details underneath it were not.

Metric	Latest Reading
August annual inflation	3%, top of the Bank's target range
Crude oil price move in September	Up 15%, surpassing US$100 per barrel
Summer oil price range	US$80 to US$85 per barrel
Gas price growth, year over year (August)	22.8%, down slightly from 25.7% in July
Next Bank of Canada decision	December 9, 2026

Economists tracking the Bank's next move say oil has effectively taken control of the inflation outlook. One senior macro strategist described oil as now being "in the driver's seat" for monetary policy, warning that if prices do not retreat soon, rising fuel costs will filter into other parts of the economy over the coming months, leaving the Bank little choice but to respond. Another economist noted that the odds of a December hike have already risen, and that continued geopolitical instability tied to the ongoing conflict in the Middle East raises the risk that inflation pressure spreads well beyond the gas pump.

The Bank of Canada cannot control oil prices, and it cannot control a war overseas. What it can control is monetary policy, and right now that is the only lever left to pull if energy costs keep climbing.

Just How Likely Is a December Hike?

Estimates vary depending on the source and the exact timing of the data, but the direction is consistent. Some market pricing has shown odds of a 25 basis point hike in December ranging from roughly 70 percent up toward 90 percent or higher in the days following the Bank's hawkish-toned September statement, when it left rates unchanged but signaled it remains ready to adjust policy as needed.

This is a meaningful shift from where sentiment stood only a few months ago, when markets were still debating the possibility of a rate cut. A probability that high is not a guarantee, central banks respond to incoming data, not market pricing, and a pullback in oil prices could change the calculation quickly. But it is a strong enough signal that borrowers should not be planning their finances around the assumption of lower rates arriving anytime soon.

How This Compounds With Other Pressure Points

Oil is not the only factor working against lower rates right now. The escalating US-Canada trade dispute, including new tariffs and product bans introduced earlier this month, has already been cited by the Bank as a source of inflation risk. Combined with surging energy prices, these two pressures are reinforcing each other rather than offsetting one another, which is a key reason sentiment has shifted so quickly from rate cut talk to rate hike talk.

What Borrowers Should Do With This Information

A rate probability is not a certainty, and it is not something the average borrower needs to forecast themselves. What matters is being prepared regardless of which way the Bank moves in December.

• Review which of your debts carry variable rates and understand exactly how a rate increase would affect your monthly payments
• If you have a renewal coming up before or shortly after December, get preapproved now and secure a rate hold rather than waiting for the December decision
• Compare fixed and variable options honestly, based on your own risk tolerance and timeline, since each carries real trade-offs in a rising-rate-risk environment
• Run a simple stress test on your own budget to confirm you have room to absorb a payment increase if the Bank does move in December

Frequently Asked Questions

Will the Bank of Canada raise interest rates in December 2026?

It is not confirmed, but market pricing following the Bank's September statement showed a significantly elevated probability of a rate hike at the December 9, 2026 decision, driven largely by rising global oil prices and persistent inflation near the top of the Bank's target range.

Why are oil prices affecting Canadian interest rates?

Rising oil prices increase gasoline costs directly and tend to filter into broader inflation over time. Since the Bank of Canada targets overall inflation, sustained high oil prices increase the likelihood of tighter monetary policy, including a possible rate hike.

What was Canada's inflation rate in August 2026?

Canada's annual inflation rate held at 3 percent in August 2026, at the top of the Bank of Canada's target range of 1 to 3 percent.

Should I lock in my mortgage rate before December?

With elevated odds of a rate hike being priced into markets ahead of the December decision, borrowers with an upcoming renewal or purchase may want to secure a rate hold sooner rather than later. Speaking with a mortgage professional about your specific timeline is the best way to decide.

The Bottom Line

Two weeks ago, the story was a rate hold. Today, it is a rising probability of a hike. That is how quickly sentiment can shift when oil prices surge and geopolitical risk stays unresolved, and it is exactly why borrowers should build their financial plans around today's real numbers rather than a rate forecast that could look very different by the time December arrives.

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