Canada’s annual inflation rate climbed to 3.1 per cent in September, driven primarily by a 27.8 per cent surge in gasoline prices compared to the same month last year. Despite the switch to the cheaper winter gas blend, the rise in energy costs has not yet spread widely throughout the economy, according to economists. BMO chief economist Douglas Porter noted that core inflation measures remain steady around two per cent, suggesting that the price increases are largely contained to gasoline.
The consumer price index (CPI) report showed that overall inflation was slightly lower than expected, with economists predicting a 3.2 per cent rise. Porter emphasized that the report does not strengthen the case for interest rate hikes ahead of the Bank of Canada’s decision on October 28. Grocery prices also moderated, with a 1.7 per cent year-over-year increase in September, the smallest rise since May 2024. Fresh vegetables and sugar prices dropped, while beef prices rose at a slower pace.
Regional inflation varied significantly, with the Maritime provinces experiencing rates above five per cent due to spikes in heating oil prices. Ontario, meanwhile, saw the lowest inflation rate at 2.5 per cent. Core inflation measures, such as CPI-trim and CPI-median, eased slightly, indicating underlying price trends are stabilizing. Andrew Grantham of CIBC Capital Markets suggested that the Bank of Canada may not need to rush into raising rates, given the current data.
Bank of Canada governor Tiff Macklem warned that persistently high energy prices could increase the risk of broader inflation. Speaking from Thailand, Macklem noted that while the global economy has shown resilience, ongoing conflicts and trade disruptions are straining this resilience. He emphasized that the central bank is prepared to raise rates if necessary, but the latest inflation report suggests policymakers may take more time to assess the situation.