Gasoline and food prices drive inflation higher
Canada’s annual inflation rate climbed to 2.4% in September, up from 1.9% in August, driven primarily by a smaller decline in gasoline prices and a sharper rise in food costs. This increase, reported by Statistics Canada, surpassed analysts’ expectations and is the last major economic indicator before the Bank of Canada’s next rate decision on October 29.
Month-over-month, the Consumer Price Index (CPI) rose by 0.1%, rebounding from a 0.1% decline in August. Gasoline prices continued their downward trend due to the federal government’s removal of a carbon levy, but the year-over-year drop in September was smaller than in August, largely because of a significant fall in fuel prices during September 2024.
Food and shelter costs continue upward trend
Food prices saw a 3.8% annual increase in September, up from 3.4% in August. Grocery costs rose 4%, compared to 3.5% the previous month, marking the steepest year-over-year rise since April 2024. Rent also pushed overall CPI higher, with a 4.8% increase leading shelter inflation to 2.6%, reinforcing the upward pressure on household expenses.
Excluding gasoline, CPI inflation hit 2.6%, slightly higher than August’s 2.4%. Economists point to these categories as key sources of persistent inflation that could influence monetary policy decisions.
Core inflation metrics show mixed signals
The Bank of Canada’s preferred core inflation indicators remained elevated. The CPI-median, which reflects the middle of the distribution of price changes, held steady at 3.2% year-over-year. Meanwhile, the CPI-trim, which removes extreme price changes, ticked up to 3.1% from 3.0%.
StatsCan noted that 37.9% of the CPI basket items showed price increases above 3%, while 38.5% were under 1%. This dispersion illustrates a still-fragmented inflation environment, despite slowing headline figures.
Markets anticipate rate cut as economy weakens
Financial markets are increasingly confident that the Bank of Canada will cut interest rates for the second consecutive time. Futures data now price in an 86% chance of a 25-basis-point rate cut later this month, potentially lowering the benchmark rate to 2.25%.
Royce Mendes, head of macro strategy at Desjardins, said, “While there might be scope for debate about inflation, there should be no disagreement that the economy is weak and in need of support.” The Canadian dollar edged higher, trading at 1.4018 CAD per USD, or approximately 71.34 U.S. cents.
