These are uncertain times. The artificial intelligence (AI) stocks are seeing their valuations questioned as the Bank of Canada (BOC) announced its first interest rate hike in three years. While the rate hike is 25 basis points, it has created uncertainty among stocks with high debt and valuations.
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What does the BOC rate hike say about uncertain times?
The BOC hiked interest rates to control inflation triggered by rising energy prices from the Middle East war. So far, businesses have absorbed elevated energy prices, but they could pass on the cost to consumers, which could increase overall inflation.
Canada’s inflation surged to 3.1% in September, and BOC expects inflation to reach roughly 3.5% by the end of 2026 and remain at or above 3% for most of 2027.
| Inflation Components | Aug 2026 | Sep 2026 |
| All-items Consumer Price Index | 3.0 | 3.1 |
| Food | 2.8 | 2.2 |
| Shelter | 1.5 | 1.8 |
| Household operations, furnishings and equipment | 0.4 | 0.4 |
| Clothing and footwear | 1.2 | 1.7 |
| Transportation | 7.5 | 8.4 |
| Health and personal care | 2.2 | 1.7 |
| Recreation, education and reading | 5.6 | 4.6 |
| Alcoholic beverages, tobacco products and recreational cannabis | 1.7 | 1.6 |
The market has been worried about a rate hike since the start of 2026 amidst rising inflation. Now that it is finally happening, and inflation is expected to stay above BOC’s targeted 1–3% range, it’s time to boost your emergency savings.
When inflation increases, the cost of living surges, and those with significant debt see a surge in interest costs. When you don’t know how much expenses will increase, it is better to lower spending and save up to meet the essentials.
Emergency funds take priority over investing
When inflation increases, it is common to review your savings. A general rule is to keep three to six months of expenses as emergency funds. Since high inflation increases expenses beyond the estimated 2%, the emergency fund also needs to increase.
If you already have three months of emergency funds saved, you could consider increasing it to six months before allocating the money for investing. Aren’t both the same?
Investing vs. Saving for emergencies
Investing comprises putting your money in growth stocks that can generate returns in the long term. With such stocks, there is a risk of your principal amount falling in uncertain times. For instance, Shopify (TSX: SHOP) is a good stock, and November to February is its seasonal peak. The stock has already surged 30% since September 15.
However, Shopify’s stock price doesn’t react positively to higher interest rates, as they slow consumer spending. That doesn’t mean Shopify is a bad stock. It means that Shopify stock could see volatility in the short term depending on how consumers spend this holiday season. With a beta of 2.6, the stock price could fall 2.6 times more than the market in volatile times. Beta measures stock price volatility to the market, which has a beta of 1.0. Shopify is a high-risk stock where you can invest for long-term capital appreciation.
Emergency funds need easily accessible, low-risk stocks that are as good as cash. The objective here is not to grow your money but to park it in a safe place so that you can access it when needed.
Ideal stock for an emergency fund
Loblaw (TSX: L) is a good stock to own in an emergency fund because of the defensive nature of this discount retailer. There is a reason why investment stalwarts say invest in companies around you. Be it inflation or tariffs, Loblaw stock remained stable or grew.
Loblaw stock surged 12% in October when AI stocks fell as risk-averse investors rebalanced their portfolios for interest rate hikes. L stock surged 26% in 2022 when accelerated rate hikes led to a tech meltdown. It is the stock that jumped 39% in 2025 when US tariffs triggered the “Buy Canadian” momentum. Its 0.33 beta shows that you can bank on the stock to protect and, if possible, grow your money in a market downturn.
