Author: Nojoud Al Mallees and Erik Hertzberg
(Bloomberg) — Canada’s overall inflation rate rose to 2.4% in September, beating expectations, and core measures ramped up, potentially keeping the Bank of Canada cautious ahead of next week’s interest rate decision.
Data from Statistics Canada on Tuesday showed that on a monthly basis, the consumer price index rose 0.1%. Economists expected a 0.1% decline.
Headline inflation accelerated in August from 1.9%, also higher than the median forecast in a Bloomberg survey of economists (2.2%).
Excluding gasoline, the index rose to 2.6% in September, up from 2.4% the previous month. The report showed underlying price pressures remained high, raising questions about how quickly the central bank can cut interest rates to aid the tariff-hit economy.
Still, the acceleration in the overall data and most core indicators was driven by the base-year effect on gasoline prices — which is likely why analysts read the report carefully.
Overnight swap traders reduced bets on a rate cut next week, reducing the likelihood to about 65% from nearly 80% before the report. The Canadian dollar jumped to the day’s high against the U.S. dollar, rising about 0.1% to C$1.4020 as of 8:35 a.m. in Ottawa. Canadian government bonds fell across the board, with the two-year yield rising about three basis points to a session high of 2.38%.
The ongoing trade war with the United States prompted the Bank of Canada to cut its policy rate by 0.25 percentage points to 2.5% in September, its first rate cut in six months.
During deliberations last month, some members of its governing board argued that more support may be needed given the weakening economy, particularly if the labor market weakens further.
Bank of Canada Governor Tiff Macklem recently called Canada’s labor market “soft” despite data showing the country added 60,400 jobs in September, as the increase only partially reversed a decline of more than 100,000 jobs in the previous two months.
The central bank will have to weigh recent economic weakness against concerns about firming core inflation over the past few months.
Rhys Mendes, deputy governor of the Bank of Canada, recently warned that traders may be placing too much emphasis on its two “preferred” core inflation measures, the so-called adjustment measure and the median measure.
In September, both the median CPI and the revised CPI were higher than economists expected. The average of these indicators in September was 3.15%, while the three-month moving average accelerated to 2.7%.
Mendes said the central bank was weighing a broader set of indicators that pointed to potential price pressures closer to its 2% target.
Housing inflation rose at an annual rate of 2.6%, while the Consumer Price Index (CPI) excluding food and energy was at 2.4%. The consumer price index (CPI), which excludes eight volatility components and indirect taxes, was 2.8%, up from 2.6%.
CPI excluding taxes accelerated to 2.9% from 2.4% last month.
The component of the consumer price index basket that rose 3% and above – another key indicator closely watched by policymakers – fell slightly to 38%.
Compared with August, year-over-year home price growth accelerated in all 10 Canadian provinces in September. Quebec saw the largest price increase, reaching 3.3% last month.
National rental prices also rose to 4.8%, with Quebec rising by 9.8%. The report noted that British Columbia’s rental prices increased by 1.8%, slowing the national increase.
–With assistance from Mario Baker Ramirez and Carter Johnson.
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Last modified: October 21, 2025
