Canada’s annual inflation rate rose more than anticipated in September, potentially complicating—but not derailing—expectations for another Bank of Canada (BoC) interest rate cut next week.
According to Statistics Canada, the consumer price index (CPI) increased 2.4% year over year, up from 1.9% in August and above the consensus forecast of 2.2% from CIBC Economics.
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“This latest inflation report makes the Bank of Canada’s decision next week a little more interesting than previously thought,” said BMO chief economist Douglas Porter.
Following the release, market expectations for a rate cut on October 29 eased slightly, with odds slipping from 77% to 69%, TD economist Andrew Hencic noted.
On a monthly basis, CPI rose 0.1%, or 0.4% on a seasonally adjusted basis. The uptick was primarily driven by a smaller annual decline in gasoline prices—down 4.1% versus a 12.7% drop in August—reflecting base-year effects from last year’s low prices and recent refinery disruptions in North America.
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Other price pressures also persisted. Nationwide rent increased 4.8%, led by a sharp 9.6% jump in Quebec, while grocery prices advanced 4%, marking the fastest pace since late 2023. Fresh vegetables and sugar products saw particularly strong gains.
Excluding gasoline, inflation reached 2.6%, up from 2.4% in August. Among the BoC’s preferred core inflation measures, CPI-trim ticked up to 3.1% and CPI-median held steady at 3.2%. Though the Bank relies on these metrics to gauge underlying price trends, their reliability has been questioned in recent months.
Economists were divided on the implications. Desjardins economist Royce Mendes pointed out that the distribution of price growth shifted lower overall, suggesting easing pressures beneath the surface. He noted that fewer CPI categories are now showing large increases, while more are rising modestly.
CIBC’s Andrew Grantham argued that despite the headline surprise, core inflation remains “subdued enough” to justify a 25-basis-point rate cut. TD’s Hencic echoed that sentiment, emphasizing that one stronger inflation print doesn’t change the broader trend amid a weak labour market and soft business sentiment.
However, BMO’s Porter cautioned that the data shows “annoying stickiness” in core inflation, potentially delaying a rate move this month. While BMO still sees rates eventually falling to around 2%, he said an October cut now looks less certain.
RBC economist Abbey Xu maintained that the BoC is still likely to cut rates next week, though the easing cycle could pause thereafter.
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