Canada's inflation just climbed to 3.1% — and the Bank of Canada's Oct. 28 decision got harder

Canada's annual inflation rate rose to 3.1 per cent in September, Statistics Canada reported Monday morning, as higher prices for gasoline and diesel pushed the consumer price index back above the Bank of Canada's 1-to-3 per cent control range. Reuters reported analysts polled ahead of the release had expected 3.2 per cent, up from 3.0 per cent in August.

Energy was the engine. Energy prices climbed 19 per cent on an annual basis in September, accelerating from 15.4 per cent in August — pushing gasoline costs up 27.8 per cent compared with a year earlier, according to the Reuters reporting of the StatCan release. On a month-over-month basis, the CPI rose 0.1 per cent in September, after a 0.1 per cent decline in August.

The two-speed economy underneath

Beneath the energy spike, much of the basket kept cooling. Grocery prices continued to rise at a slower pace, with food purchased from stores up 1.7 per cent year over year — the smallest annual increase since May 2024, Statistics Canada said. Shelter prices rose 1.8 per cent annually, up from 1.5 per cent in August, with rents increasing 2.8 per cent.

One warning sign did flash: air transportation rose 19.4 per cent year over year — the energy pass-through into services that inflation watchers have been braced for.

The core stayed calm — and that's the debate

The Bank of Canada's preferred core measures stayed well behaved. CPI-median, the middle-of-the-basket measure, slowed to 1.9 per cent, while CPI-trim, which excludes the most extreme price moves, held at 1.8 per cent — both comfortably inside the target range.

That is the crux of the decision facing Governor Tiff Macklem and the governing council. Macklem has said the new forecasts released alongside the Oct. 28 decision will show higher inflation in Canada, but that there are still no signs inflation has spread to other commodities — the bank's "look through" framing.

What this means for Oct. 28

This is the last CPI reading before the Bank of Canada's Oct. 28 rate decision, with the policy rate sitting at 2.25 per cent after seven straight holds. Reuters reported money markets are now betting the bank holds at 2.25 per cent on Oct. 28 — but are pricing in a 25-basis-point hike in December.

Canadians get one more data drop today before the decision: the Bank of Canada's Q3 Business Outlook Survey and Canadian Survey of Consumer Expectations land at 11:30 a.m. ET, offering a read on what businesses and households actually expect prices to do next.

For households, September's report is a split screen. Grocery inflation is the calmest it has been in more than two years — real relief at the checkout. Gasoline is not. And with markets now leaning toward a December hike, the cheap-money era for mortgage renewals is looking harder to recover.