Inflation Stays Elevated in September, but Core Measures Remain Contained

In September, the Consumer Price Index (CPI) rose by 3.1 per cent year-over-year (y/y), which was higher than August’s 3.0 per cent increase.

Key insights

Despite today’s elevated headline reading, underlying inflationary pressures remain contained. The higher inflation reading was driven primarily by gasoline prices, which remained the main upward contributor to CPI growth. Although grocery price levels remain high, this was the smallest yearly increase since May 2024 (+1.5 per cent), and the second consecutive month where grocery price growth increased at a slower y/y pace than the all-items CPI. However, shelter prices rose as mortgage interest costs increased alongside higher medium- and long-term bond yields. Conversely, many measures of core inflation eased in September.

Despite inflation’s persistent strength, we expect the Bank of Canada will maintain its current monetary policy stance at its next rate announcement on October 28. The Bank’s Governing Council is anxiously “looking through” the energy shock, anticipating that it can resolve without becoming a broader inflation problem. Higher interest rates would do little to curb inflationary pressure as the conflict in the Middle East remains the primary driver of price pressures. Canada’s economic growth is also softening, and labour market readings in August and September were weak. Acting pre-emptively by raising rates would threaten to slow down an economy already dealing with tariffs and higher energy costs to broader consumer prices has been limited up to now.

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