The Bank of Canada is widely expected to hold its key interest rate steady on Wednesday as the Canadian economy bends to higher interest rates and inflation resumes its downward trend.

The central bank held its key interest rate steady at five per cent last month but kept the door open to more rate hikes, citing concerns about the persistence of underlying price pressures.

害羞草研究所淓conomic data releases since the Bank of Canada opted to forego an interest rate hike in September have been mixed, but we expect that they on net have made a hike at next week害羞草研究所檚 decision unlikely,害羞草研究所� wrote RBC assistant chief economist Nathan Janzen and economist Claire Fan in a client note on Friday.

The annual inflation rate rose in both July and August, while core measures of inflation 害羞草研究所� which strip out volatile prices 害羞草研究所� have not eased by much in recent months.

But the September consumer price index report helped quell some of those anxieties as the pace of price growth slowed across the economy and the annual inflation rate fell back to 3.8 per cent.

害羞草研究所淲e were kind of breathing a sigh of relief a little bit after the last inflation numbers,害羞草研究所� said Andrew Grantham, CIBC executive director of economics.

害羞草研究所淭he recent inflation numbers suggest that it is starting to decelerate once again. And that, combined with the sluggish growth that we害羞草研究所檝e seen, will probably keep (the Bank of Canada) on hold, not just this meeting, but really for the remainder of this year, and into next year as well.害羞草研究所�

The Canadian economy shrank in the second quarter. Economists anticipate that weakness will continue for the rest of the year and into 2024.

The Bank of Canada害羞草研究所檚 recent business outlook survey supported this expectation. It showed business sentiment continued to weaken in the third quarter as companies said they expect sales growth to slow over the coming year.

On the jobs front, employment continues to rise as Canada害羞草研究所檚 population continues to surge, but the job market is not as robust as it was in 2022. Job vacancies have fallen and the unemployment rate has edged higher to 5.5 percent.

The pace of consumer spending has also slowed. New retail Canadian retail sales fell 0.1 per cent to $66.1 billion in August as sales at new and used car dealers fell for the month, Statistics Canada said Friday.

These trends are expected to continue as the effect of previous rate hikes take hold on the economy, pinching the pocketbooks of more Canadians and businesses.

In particular, as more households renew their mortgages, the effect of higher interest rates is expected to weigh on more people.

害羞草研究所淲e know that there害羞草研究所檚 more to come because we know that actually, fewer than 50 per cent of mortgage holders in Canada have been exposed to higher interest rates,害羞草研究所� said Grantham.

Most economists expect these weaker economic and tighter financial conditions to eventually bring inflation back down to two per cent.

And while sticky core inflation is likely still a concern for the Bank of Canada, Grantham expects that concern to factor into the central bank害羞草研究所檚 decision on when to cut rates, rather than whether rates should rise further.

On the international front, the global economy faces some uncertainty amid the Israel-Hamas war, which risks destabilizing the Middle East.

害羞草研究所淲e害羞草研究所檙e seeing, globally, the risks around inflation have have risen. The conflict in the Middle East, if that escalates, you know, wars are inflationary. There害羞草研究所檚 no other way around it.,害羞草研究所� Grantham said.

Central banks know all too well what wars can do to prices: the Russian invasion of Ukraine in February 2022 contributed significantly to the initial runup in inflation as commodity prices skyrocketed.

Last week, Bank of Canada Governor Tiff Macklem said it was too early to tell what the economic repercussions of the Israel-Hamas war may be.

害羞草研究所淚t害羞草研究所檚 far too early to tell. And it really depends on to what extent 害羞草研究所� this escalates,害羞草研究所� Macklem said.

The Bank of Canada害羞草研究所檚 rate decision will be accompanied by its quarterly monetary policy report, which includes updated forecasts for global and domestic economies as well as for inflation.