Canada saw a rise in its annual inflation rate to 3.1% in September, as reported by Statistics Canada on Monday. This increase has put the Bank of Canada in a challenging position leading up to its rate announcement later in the month. The consumer price index edged up by 0.1% last month compared to August, attributed to the surge in benchmark oil prices due to the Middle East conflict. Despite a 27.8% year-over-year spike in pump prices, the shift to cheaper winter gasoline blends contributed some relief in September.
CIBC’s chief economist, Avery Shenfeld, highlighted the inflation in gasoline prices as a known issue for Canadians, while noting a lack of significant inflation in other sectors. Excluding gasoline, consumer prices rose by 2.2% year-over-year in September. The average price for a liter of regular gasoline stood at $1.824 across the country, marking a nearly 33% increase from the previous year. Diesel prices also surged by almost 80% in the past year.
In terms of groceries, prices saw a 1.7% yearly increase in September, a decline from the 2.8% uptick in August. This decrease was attributed to lower prices for fresh vegetables and a drop in the “sugar and confectionery” category. Shelter prices rose by 1.8% year-over-year, up from 1.5% in August. Statistics Canada’s core inflation measures showed a slight easing on a monthly basis in September, crucial data closely monitored by the Bank of Canada.
Economists emphasized the necessity for the Bank of Canada to strike a delicate balance given the current economic landscape. Bank of Canada Governor Tiff Macklem cautioned about the impact of persistent global energy prices resulting from the ongoing Middle East conflict on the central bank’s inflation outlook. The Bank of Canada’s latest Business Outlook Survey indicated an expected average inflation rate of 3.7% over the next year.
Amidst uncertainties caused by energy market disruptions, economists and analysts are closely observing the potential for a rate hike to curb inflation. The Bank of Canada is expected to maintain its overnight rate throughout 2026 before gradually increasing rates in 2027. Recent communications from the Bank of Canada and Governor Macklem suggest a sense of urgency, despite softer labor market data and increased borrowing costs, leaving the decision on a rate increase finely poised.
