One Shock, Two Responses

On October 28, 2026, the Bank of Canada raised its policy rate from 2.25% to 2.50%, its first hike since July 2023. The same day, the Federal Reserve held its range at 3.75%-4%. Ten members voted for the status quo, two would have preferred a quarter-point increase.

Oil, the Starting Point

Brent trades at $114.13 a barrel. The United States has had to draw on its reserves: the American strategic reserve falls to 282.7 million barrels, its lowest level since 1982. In Europe, TTF gas trades around €98.58 per megawatt-hour. Diesel shortages and freight costs spread these tensions well beyond the crude market.

Ottawa: The Fear of Transmission

In Canada, inflation has held near 3% since April. The central bank now fears about 3.5% by the end of 2026 and a 3% average in 2027, a full point above its July projections. It does not expect a return to 2% until mid-2028.

The reasoning rests on the cost chain. Pricier fuels weigh on transport and production. Companies have absorbed part of these extra costs, but they could pass more of them on to their prices. Refining margins can also keep fuels at a high level even if crude stabilizes.

Washington and Frankfurt: Caution and Waiting

The Fed judges inflation still elevated but prefers to wait. With the US ten-year yield near 5%, financial conditions are already tightening through the market. The European Central Bank must announce its decision on October 29 at 2:15 p.m. Paris time, and its comments on energy and inflation expectations will be closely watched.

Consumers, the Mechanism's Limit

In Japan, core inflation excluding fresh food reaches 3.2% in September. Yet Uniqlo scrapped a price increase on its socks in the face of customer pushback, showing that cost pass-through has a ceiling.

Limits to Keep in Mind

The picture is not one-sided. In Canada, inflation excluding gasoline is 2.2% and underlying indicators remain near 2%, so the diffusion is not yet widespread. The Fed ruled out a hike by a wide majority. The ECB's outcome is not yet known, and the trajectory depends on how long Gulf supply disruptions last.

Key Takeaways

Energy is the driver of current divergences, but the October 28 decisions do not yet sketch a generalized tightening cycle. The test will hinge on non-energy prices and on the ECB's tone.

This article was written with the assistance of artificial intelligence and verified by our editorial team.