Canada's inflation below estimates as core measures ease

Canada's inflation rate rose to 3.1% in September, Statistics Canada said Monday, short of the 3.2% increase analysts polled by Reuters had expected.

The step up from 3.0% in August came from the pump. Gasoline prices were 27.8% higher than a year earlier, compared with a 22.8% rise in August. Excluding gasoline, inflation slowed to 2.2% from 2.4%.

Statistics Canada said crude prices rose in September to their highest since May, amid uncertainty about the wars in the Middle East, and that a switch to a less expensive winter blend of gasoline kept the increase at the pump from being larger.

Groceries were the offset. Food bought in stores rose 1.7% from a year earlier, down from 2.8% in August.

The Canadian dollar firmed after the data. Reuters put it up 0.29% at C$1.4096 per US dollar. At 9:55 a.m. Eastern time, Invesco CurrencyShares Canadian Dollar Trust CFXC was up 0.2% at $69.29.

The rise stayed in fuel

The Bank of Canada aims to keep inflation at the 2% midpoint of a 1% to 3% range. Reuters said higher gasoline and diesel prices pushed the consumer price index above that upper limit again after three months.

The Bank says its core measures let it see past a temporary jump in the consumer price index. CPI-trim, which leaves out the sharpest price changes, eased to 1.8% from 1.9%. CPI-median, the middle of the distribution of price changes, eased to 1.9% from 2.0%.

Both are below the 2% target. Bloomberg reported that economists had expected both to hold steady.

This is the last inflation report before the Bank announces its rate decision and a new Monetary Policy Report on Oct. 28. The overnight rate is 2.25%, where the Bank has left it since a cut on Oct. 29, 2025.

Speaking Saturday from International Monetary Fund meetings in Bangkok, Governor Tiff Macklem said the outlook would be "quite a bit higher" than the July forecast, The Canadian Press reported. That forecast had inflation cooling to around 2.5% in the second half of 2026.

"The question we're going to be asking ourselves is, is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?" he said.

The Canadian Press reported that the Bank has signalled it will look through the initial inflation from the war in the Middle East, and is prepared to raise its policy rate if inflation spreads. That means setting the first jump aside and watching for a broader rise.

September did not show a broader rise. Inflation outside gasoline slowed, the two core measures came in below the steady readings economists had expected, and Reuters said there were still no signs the rise had reached other commodity prices.

Reuters reported that money markets were betting the Bank would hold at 2.25% on Oct. 28, and were pricing a 25-basis-point increase in December. A hold matches a report that kept the rise in fuel. A December increase is still priced.