Canada inflation rises above Bank of Canada target band in September
Canada's consumer price growth accelerates in September, pushing the annual inflation rate back above the Bank of Canada's upper limit after three months. The reading arrives ahead of the central bank's rate decision later this month, with fuel costs driving much of the increase while core measures remain below 2%.
Highlights
- Canada's annual inflation rate rises to 3.1% in September from 3% in August, exceeding the Bank of Canada's 1-3% target band.
- Energy prices drive the increase with a 19% annual rise, gasoline up 27.8%, while food inflation slows and core CPI-median eases to 1.9%.
- Money markets expect the Bank of Canada to hold rates at 2.25% on October 28 but see a 25 basis point hike possible in December.
September CPI reading and policy timing
As reported by Reuters, citing Statistics Canada, the annual inflation rate rises to 3.1% in September from 3% in August, slightly below the 3.2% forecast in a Reuters poll of analysts. On a month-over-month basis, the consumer price index increases by 0.1% in September after a 0.1% decline in August.The September figure is the last CPI report before the Bank of Canada's monetary policy decision on October 28. Governor Tiff Macklem says updated forecasts released with that decision will show higher inflation in Canada, although there are still no signs that price pressures are spreading to other commodities.
Energy costs drive gains as markets assess next move
The stronger headline reading is largely driven by a 19% annual rise in energy prices, following a 15.4% increase in August. Gasoline costs climb 27.8% from a year earlier, while air transportation prices rise 19.4% and shelter prices increase 1.8% annually after a 1.5% gain in August; rents rise 2.8% in September.Food inflation continues to ease, with store-bought grocery prices rising 1.7% year over year, the smallest annual increase since May 2024. The Bank of Canada's preferred core measures also remain contained, with CPI-median slowing to 1.9% and CPI-trim at 1.8% in September.
Money markets are betting the Bank of Canada holds its policy rate at 2.25% on October 28, though they are also pricing in a 25 basis point increase in December. The latest data keeps attention on whether the recent pickup in inflation reflects energy-driven volatility or a broader shift in price pressures across the Canadian economy.
In our earlier article, we covered the sharp sell-off in U.S. AI- and chip-related stocks as investors reassessed lofty valuations amid broader market volatility. We also noted that oil climbing to around $110 a barrel was amplifying inflation fears and raising questions about how long the Fed might keep policy restrictive, adding pressure to risk assets.
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