On October 28, the Bank of Canada raised its policy rate by 25 basis points to 2.5%, its first increase since JulyredactedThe same day, the Federal Reserve held its target range at 3.75% to 4%. The driver is energy: the Bank wants to stop high fuel prices from spreading into the prices of everything else. What The Bank Said - Inflation is climbing: CPI inflation has run around 3% since April and is expected to reach about 3.5% by year-end. Excluding gasoline, inflation was 2.2% in September. - Costs have not reached prices yet: Businesses have mostly absorbed higher input costs so far. The Bank expects more of those costs to be passed on to customers over the next year. - The economy is holding up: GDP grew 3.3% in the second quarter. Growth is forecast at 1% for 2026 and 2% for each of 2027 andredactedUnemployment has sat around 6.5% for several months. - More hikes are possible: The statement says the Bank could need to raise rates further but will “proceed carefully.” The next decision is December 9. What It Means For Deals - Trailing margins may flatter the target: If a business has been absorbing higher fuel and input costs, the profit that shows in its last 12 months may not reflect the price increases still to come or the customers it may lose once it raises them. Buyers should test what margin is left after costs are passed on, not the margin before. - Working capital targets set on old prices run short: When prices rise about 3.5% in a year, a working capital target based on a 12-month average understates the level the business now needs. The seller delivers more working capital at closing than the target and is paid for the difference. Buyers may push for a target based on recent months. - Floating-rate loans cost more right away: Canadian bank acquisition loans are usually priced off prime. RBC, TD, CIBC and National Bank all raised prime from 4.45% to 4.70%, effective October 29. A quarter-point increase on a $4M floating loan adds $10K a year in interest, which comes straight out of the cash available for loan payments.