Headline inflation rose 2.4% in September, up from a 1.9% increase in August and above economists’ expectations, Statistics Canada reported this morning.
On a monthly basis, the Consumer Price Index edged up 0.1%.
The Bank of Canada’s preferred core measures—CPI-trim and CPI-median, which exclude volatile components such as food and energy—stood at 3.1% and 3.2%, respectively. Both were hotter than predicted, with CPI-median landing 0.2 percentage points above the general consensus.
“We were all braced for a pop in headline to back above 2% on gasoline prices alone, but unfortunately food inflation got hungrier as well, with a few other elements of core also nudging into the picture,” says BMO’s chief economist Douglas Porter.
Sticky inflation complicates the path to a rate cut, but markets hold firm
The unexpected heat in this morning’s inflation data is casting doubt on whether the Bank of Canada will cut rates a week from today, and economists remain divided on the outcome.
Scotiabank’s Derek Holt noted that a higher-than-normal inflation reading would “present awkward optics for cutting,” he wrote prior to today’s release. He added that it’s unusual for the central bank to reduce rates when the CPI-trim and CPI-median averages are running in the 2.75% range on a month-over-month, seasonally adjusted annualized basis.
BMO’s Douglas Porter wasn’t fully expecting another rate cut in October, and noted that this morning’s data has reinforced that view.
“We have been on the dovish side of the ledger, calling for the Bank to eventually cut the overnight rate to 2.0% (and possibly lower if trade gets uglier), but were not convinced that October would see another cut,” he wrote. “Given today’s setback for core, we’ll stay there for now.”
In contrast, TD’s Andrew Hencic said the Bank of Canada “should still have room to deliver another cut,” citing the weak job market and fragile economic outlook as key drivers, along with current market positioning.
“Markets seem to agree, pricing the odds of an October cut at 69%, just a touch below the 77% before the release,” he wrote.
Following the release of the inflation data, Canada’s 5-year bond yield rose 2bps to 2.58% while the 10-year bond yield was largely unchanged at 3.01%.
While some economists see room for another rate cut next week, they also expect it to be the last for a while. CIBC economist Andrew Grantham said core inflation measures are “just about subdued enough,” and the economy “certainly weak enough,” to justify one more 25-basis-point move.
“However, after that the Bank is likely to move back onto the sidelines, in part due to evidence of some lingering inflationary pressures, but also on the assumptions that economic growth starts to recover and progress is made towards a trade deal that reduces some of the sector specific tariffs currently impacting Canadian trade,” he noted.
View the latest policy rate forecasts from Canada’s major banks
Visited 1 times, 1 visit(s) today
andrew grantham Andrew Hencic Bank of Canada Bank of canada rate expectations boc forecasts brett Surbey CPI inflation Dashboard derek holt douglas porter inflation statistics canada
Last modified: October 21, 2025