By Nojoud Al Mallees and Erik Hertzberg
(Bloomberg) — Canada’s headline inflation rate rose more than expected in September to 2.4% and core measures heated up, likely giving the Bank of Canada some reason for caution ahead of next week’s rate decision.
On a monthly basis, the consumer price index rose by 0.1%, Statistics Canada data showed Tuesday. Economists were expecting a 0.1% decline.
The acceleration in headline inflation from 1.9% in August was also stronger than the median projection in a Bloomberg survey of economists, which was 2.2%.
Excluding gasoline, the index rose to 2.6% in September, up from 2.4% the previous month. The report shows that underlying price pressures remain elevated, raising questions about how quickly the central bank can proceed with rate cuts to aid the tariff-hit economy.
Still, the acceleration in headline and most core measures was driven by a gasoline price base-year effect — a possible reason for analysts to look through the print.
Traders in overnight swaps pared bets on a rate cut next week, lowering the odds to about 65% from close to 80% before the report. The loonie jumped to the day’s high against the U.S. dollar, rallying some 0.1% to C$1.4020 as of 8:35 a.m. in Ottawa. Canadian debt fell across the curve, with the two-year yield rising about three basis points to a session high at 2.38%.
The ongoing trade war with the U.S. drove the Bank of Canada to lower its policy rate by a quarter of a percentage point to 2.5% in September, marking the first cut in six months.
During their deliberations last month, some members of its governing council argued more support would likely be needed given the softness in the economy, particularly if the labour market weakened further.
Bank of Canada Governor Tiff Macklem recently called Canada’s labour market “soft,” despite data that showed the country added 60,400 jobs in September, as the gain only partially reversed a decline of more than 100,000 positions over the previous two months.
The central bank will have to weigh recent economic weakness against concerns about firm core inflation over the past few months.
Bank of Canada Deputy Governor Rhys Mendes recently warned traders may be putting too much emphasis on its two “preferred” core inflation measures, the so-called trim and median gauges.
In September, both CPI-median and CPI-trim came in hotter than economists were expecting. The average of these metrics was 3.15% in September, while the three-month moving average accelerated to 2.7%.
Mendes said the central bank is weighing a broader suite of gauges that suggest underlying price pressures are closer to its 2% target.
Shelter inflation rose 2.6% on an annual basis, while CPI excluding food and energy was 2.4%. CPI excluding eight volatile components and indirect taxes was 2.8%, up from 2.6%.
CPI excluding taxes accelerated to 2.9% from 2.4% the previous month.
The share of components within the consumer price index basket that are rising 3% and higher — another key metric that policymakers are watching closely — declined slightly to 38%.
All 10 Canadian provinces saw prices rising at a faster year-over-year pace in September compared with August. Quebec experienced the steepest price growth, reaching 3.3% last month.
Rent prices also accelerated nationally to 4.8%, led by a 9.8% increase in Quebec. Slower rent price growth of 1.8% in British Columbia moderated the national increase, the report noted.
–With assistance from Mario Baker Ramirez and Carter Johnson.
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Last modified: October 21, 2025