Canada inflation comes in below forecasts ahead of central bank decision

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Canadian inflation rises to 3.1%

Highlights

Canadian inflation rises to 3.1% in September.
Core inflation measures ease to 1.9% and 1.8%.
Rate hike expectations decline after CPI data.

Consumer prices increased 0.1% from August, according to Statistics Canada. Annual inflation rose from 3% in August but remained below economists' forecast of 3.2%. Gasoline prices climbed 27.8% from a year earlier, compared with 22.8% in August, while the central bank's preferred measures of core inflation declined, Bloomberg reports.

Core inflation slows despite higher energy costs

Excluding food and energy, annual inflation remained unchanged at 2.1%. The Bank of Canada's median measure fell to 1.9%, while its trimmed measure declined to 1.8%. Both readings suggest that price pressures outside the most volatile categories are becoming less widespread.

The share of consumer price index components recording annual increases of at least 3% dropped to 29.2% from 34.2% in August. Grocery inflation also slowed, with prices rising 1.7% annually after a 2.8% increase the previous month. That marked the smallest yearly increase in grocery prices since May 2024.

Shelter costs rose 1.8% from a year earlier, accelerating from 1.5% in August. Higher fuel expenses, home insurance premiums, and maintenance costs contributed to the increase.

Canadian dollar pairs gains after inflation report

The Canadian dollar reduced its earlier gains following the release but remained 0.3% stronger against the US dollar, trading near C$1.4101 per US dollar. The currency has gained approximately 1% since the beginning of October.

Before the inflation figures were published, overnight swap markets indicated nearly a 70% probability of an interest rate increase this month. Those expectations eased slightly after headline inflation came in below forecasts. The softer core readings gave investors additional reason to question whether an immediate increase was necessary.

Bank of Canada faces competing economic risks

Governor Tiff Macklem has warned that rising oil prices could lift inflation and support economic growth, potentially requiring tighter monetary policy. However, US tariffs continue to weigh on Canada's economy, complicating the central bank's decision ahead of next week's meeting.

Canada has lost 41,200 jobs since December 2025, its largest comparable year-to-date employment decline since the 2009 financial crisis, excluding the pandemic year of 2020. That weakness makes higher borrowing costs particularly difficult to justify without clearer evidence of persistent inflation.

September's figures leave policymakers with conflicting signals. Headline inflation remains above the central bank's 2% target, but easing core measures and slower grocery inflation suggest broader price pressures are moderating. The next rate decision will depend on how officials balance those developments against energy costs and trade-related risks.

Earlier, we reported that the Canada trade mission secures nearly $300 million in India agreements.

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