Statistics Canada reported this morning that overall inflation rose 2.4% in September, up from 1.9% in August and higher than economists expected.
On a monthly basis, the consumer price index rose slightly by 0.1%.
The Bank of Canada’s preferred core indicators – adjusted CPI and median CPI (excluding volatile components such as food and energy) were 3.1% and 3.2% respectively. Both were hotter than expected, with the median CPI 0.2 percentage points above consensus expectations.
“We were all bracing for the headlines to push gas prices up over 2%, but unfortunately food inflation also became more severe and some other core factors started to come into play,” said Douglas Porter, chief economist at BMO.
Sticky inflation complicates path to rate cuts, but markets hold firm
Inflation data released this morning was surprisingly hot, casting doubt on whether the Bank of Canada will cut interest rates a week from today, while economists remain divided on the outcome.
Writing ahead of today’s announcement, Scotiabank’s Derek Holt noted that higher-than-normal inflation data would “create an awkward situation for a rate cut.” He added that it would be unusual for the central bank to cut interest rates when the adjusted and median consumer price index (CPI) averages are running in the 2.75% range on a month-on-month, seasonally adjusted annualized basis.
BMO’s Douglas Porter doesn’t fully expect another rate cut in October, noting that this morning’s data reinforced that view.
“We have been on the dovish side, calling for the central bank to eventually cut overnight rates to 2.0% (possibly lower if the trade situation worsens), but do not believe another rate cut will occur in October,” he wrote. “Given today’s setback in core business, we would stay there for now.”
By contrast, TD Bank’s Andrew Hencic said the Bank of Canada “should still have room to cut interest rates again,” citing a weak job market and fragile economic outlook as key drivers, as well as current market positioning.
“The market seems to agree that the probability of a rate cut in October is 69%, only slightly lower than the 77% chance before the release,” he wrote.
After the release of the inflation data, Canada’s 5-year Treasury bond yield rose 2 basis points to 2.58%, while the 10-year Treasury bond yield was essentially 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 the core inflation measure was “almost subdued enough” and the economy was “certainly weak enough” to justify a 25 basis point hike.
“However, there is a risk that the central bank will return to a wait-and-see approach thereafter, in part due to evidence of some lingering inflationary pressures, but also based on the assumption that economic growth is beginning to recover and progress is being made on a trade agreement that reduces some industry-specific tariffs currently affecting Canadian trade,” he noted.
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Last modified: October 21, 2025
