On Oct. 28, the Bank of Canada raised its policy rate by a quarter percentage point to 2.5 per cent.

In very simple terms, part of the bank’s reasoning is that businesses facing higher energy costs may soon charge more for their products and services. The bank hopes that making borrowing more expensive will slow spending and reduce demand. With demand weaker than it otherwise would be, businesses may find it harder to raise prices and may instead absorb some of the higher costs through lower profits.

Headline inflation is already around 3 per cent, largely because of energy. The bank’s concern is that those pressures will spread, even though core inflation remains close to 2 per cent.

 

How this reaches your wallet

 

Consider a business selling a widget for $1. Higher energy costs make production and delivery more expensive, so the owner considers raising the price to $1.50. These figures are just an example.

The bank raises interest rates. The business still faces the higher energy bill, while new borrowing and some existing loans become more expensive. Financing daily operations or expansion may now cost more.

Customers face more expensive credit too, and some have higher mortgage or loan payments. After paying for housing, food, utilities and debt, they have less money left for other purchases. They may put off buying the widget or decide they can do without it.

With fewer customers willing or able to pay $1.50, the owner may keep the price at $1 or raise it by a smaller amount. The business then absorbs some or all of the higher energy costs through lower profits.

That is how the bank hopes to slow price increases. But the business may not have enough profit to cover those extra costs. The owner may then order less stock, delay expansion, reduce staff hours or cut jobs.

 

What it means for housing

 

In real estate, that pressure reaches beyond the monthly mortgage payment. Buyers may qualify for less or postpone purchasing. Existing borrowers may have less money left after debt payments. Builders and investors may face higher financing costs, making some housing projects harder to justify.

The effects vary by mortgage type and timing. But for a housing market already struggling with affordability and weak activity, another increase adds pressure.

In Oakville, as an example, Toronto Regional Real Estate Board (TRREB) and Habistat data show 1,927 sales from January to September 2026. That is slightly above 2025, but still the second-lowest total for that period since 2010 and about 30 per cent below 2019. This does not establish what interest rates should be across Canada. It does show the subdued market into which higher borrowing costs are arriving.

How strong are household finances?

 

The bank also points to growth stronger than it expected, including solid consumer spending, investment and exports. That improvement deserves recognition. But the figures need context.

Statistics Canada reported that household disposable income rose 2.1 per cent in the second quarter, supported by higher wages and government transfers. That increase was before adjusting for inflation.

But here is the problem: part of that income increase came from temporary government assistance. In June, the federal government began issuing a one-time GST/HST credit top-up, announced as about $3.1 billion in support. Eligible recipients could receive up to $267 for a single person without children or $533 for a couple with two children.

Statistics Canada identifies that payment as one contributor to the income increase. The headline figure therefore includes temporary assistance, not just higher earnings.

Regular benefit payments were also increased starting in July, so the additional support did not disappear entirely. Still, the June payment was a temporary boost.

The bank acknowledges that temporary government payments supported consumer spending. We should not suggest it overlooked them. The question is how much evidence of lasting economic strength that spending provides.

Counting the payment as income is understandable. But temporary relief does not prove lasting financial strength.

 

Why I question this increase

 

Interest rate decisions depend on evidence, forecasts and judgment. Because monetary policy takes time to work, waiting for inflation to spread can mean acting too late. That is a reasonable argument for moving early. But moving early also risks adding pressure that proves unnecessary.

The bank itself acknowledges that core inflation remains close to 2 per cent, spare economic capacity remains and longer-term inflation expectations are anchored.

In my view, the bank has not made a sufficiently convincing case that additional restraint is warranted now. Holding rates steady while monitoring whether energy costs spread more broadly was also an option.

That approach carries risks too. Inflation could become more persistent and require a stronger response later. But raising rates also carries costs for households, businesses, employment and investment. The question is not whether the bank has a rationale. It is whether the expected benefit justifies the cost.

Households did not cause the energy disruption. Before asking them to absorb higher borrowing costs alongside higher energy bills, the case should be compelling.

For housing, the question is particularly difficult: how much more pressure should buyers, existing borrowers and those financing new homes absorb to contain inflation driven largely by energy costs?

Canadians already pay substantial taxes and are now paying more for energy. Why must the response to that energy shock also leave them paying more to borrow?