Key points

• Inflation remains around 3%.
• Core inflation measures closer to the 2% target.
• We expect a ‘hawkish’ hold by the Bank of Canada next week.

Canadians can’t seem to catch a break from inflation. After enduring a post-pandemic surge,  higher inflation has re-emerged due to the jump in energy prices following the war in Iran. We look into today’s inflation print for September and what it means for the Bank of Canada’s next move.

Fueling up

Canada’s consumer price index rose 3.1% in September over the same month last year, a notch higher than the 3% reading in August.

Energy remains the culprit, with gasoline prices shooting up 28% year-over-year (y/y). Federal fuel tax relief helped, but could not offset the impact of tighter oil supplies from Strait of Hormuz disruptions.

Better core

Canadians are feeling the impacts of today’s elevated inflation, compounded by past bouts of very high inflation. Regardless of the source, life feels pretty expensive.

That said, if you remove energy from the basket of goods and services, the Consumer Price Index rose at a much calmer 2.1% y/y last month.

Groceries are expensive, but are rising at a slower rate (1.7% y/y last month). And shelter costs (1.8%) are providing less force than in the recent past due to flat mortgage interest costs and cooling rental pressures. One thing we’re watching, though, is upward pressure on mortgage rates now that 5-year bond yields have increased.

We can go one step further by looking at ‘underlying’, or core, inflation measures. The Bank looks at the trim and median core inflation metrics closely, as they tell us if inflationary pressures are building at a general level. Both measures remain well behaved at 1.9% y/y for median and 1.8% y/y for trim.

However, it gets a tad more concerning when looking at more recent trends. If you take the three-month moving average of trim and median, and annualize its month-over-month growth rate, both core metrics have been trending higher. Using this calculation, they sit closer to 2.5% in September.

A ‘hawkish’ hold expected

The Bank of Canada has been clear. They are willing to temporarily tolerate higher inflation caused by the surge in oil prices. However, they will not tolerate ‘generalized inflation’ caused by a passthrough of higher energy prices to other goods and services.

Then there is the economy. It’s been wobbly, with job losses in the last two months and signs pointing to a much softer third quarter of GDP growth.

With the annual rate of core inflation below 2% and the economy fragile, we believe the Bank has enough breathing room to hold on a bit longer. It’s a close call, but we retain our view that the Bank remains on hold on October 28. It will come with warnings that they won’t tolerate this high inflation for much longer. They are watching inflation like a hawk and ready to hike.

Still higher inflation in Alberta

Alberta’s annual inflation rate ticked down slightly from 3.8% to 3.6% in September. 

As in August, the main reason inflation is running hotter in Alberta is vehicle insurance premiums, up 22.8% y/y last month. This item has only a 3.8% weight in the CPI basket, but it’s enough to explain the gap between national and provincial inflation. Vehicle premiums are showing early signs of leveling off month-over-month, and the province is implementing a new “care-first” system in part to address higher premium costs. 

Grocery inflation (1.8% y/y) is in line with national trends, while shelter is running a bit cooler (0.8% y/y) thanks to an outright decline in rents (-2.3% y/y). 

The recent Alberta fuel tax holiday (effective October 1) will help lower inflation, but we’ll need to wait until next month to see the effect in the inflation data.  

Answer to the previous trivia question: The second Canadian woman to win the Nobel Prize for literature is Anne Carson, who was awarded the prize in 2026.

Bonus question answer: Olivia and Noah were Alberta’s most popular baby names in 2025.

Today’s trivia question: What Canadian province is named after Queen Victoria’s fourth daughter?