Canadian CPI Inflation Edges Up to 3.1% in September, While Core Inflation Slowed Further Below Its 2% Target

General Kim Franz 19 Oct

The Consumer Price Index (CPI) rose 3.1% year over year in September, up from 3.0% in August. Higher gasoline prices led the acceleration in September (+27.8%) compared with August (+22.8%). Excluding gasoline, the CPI rose 2.2%, after increasing 2.4% in August.

Moderating the acceleration in the all-items CPI in September were smaller year-over-year price increases for travel tours and groceries compared with the previous month.

The CPI increased 0.1% month over month in September. Seasonally adjusted, the CPI rose 0.4%.

Energy prices accelerated in September, rising 19.0% year over year after a 15.4% gain in August. Crude oil prices rose in September, reaching their highest level since May amid ongoing uncertainty about the wars in the Middle East, which pushed up gasoline and fuel oil prices.

Year over year, prices for gasoline rose at a faster pace in September (+27.8%) compared with August (+22.8%). The switch to the less expensive winter blend moderated the increase in gasoline prices in September.

Similarly, prices for fuel oil and other fuels rose 57.8% year over year in September, following a 43.7% increase in August. The price increase in September had a greater impact on consumers in Atlantic Canada, where fuel oil is more widely used.

Prices for food purchased from stores rose 1.7% year over year in September, after increasing 2.8% in August. Although price levels remain high, this was the smallest yearly increase since May 2024 (+1.5%), and the second consecutive month where grocery price growth increased at a slower pace than the all-items CPI.

Driving the year-over-year slowdown in grocery prices in September 2026 were declines in prices for fresh vegetables (-2.9%) and sugar and confectionery (-2.7%). Prices for other food preparations (+1.8%) and fresh or frozen beef (+8.7%) rose at a slower pace in September than in August (+2.8% and +11.0%, respectively), also contributing to the slowdown.

Despite the year-over-year slowdown in grocery prices, prices have increased 33.0% since September 2020.

In September, shelter prices rose 1.8% year over year, up from a 1.5% increase in August. In addition to higher prices for fuel oil and other fuels (+57.8%), faster price growth in homeowners’ home and mortgage insurance (+4.9%) and homeowners’ maintenance and repairs (+1.2%) drove the acceleration.

The homeowners’ replacement cost (-1.9%) and mortgage interest cost (-0.2%) indexes fell at the same rate in September as they did in August. Meanwhile, rent prices rose 2.8% year over year, matching the August increase.

In addition to the slowdown in core measures, the share of CPI components rising at 3% or higher fell to 29.2% from 34.2% in August.

Year over year, prices rose faster in five provinces in September than in August, mainly because of higher prices for gasoline and fuel oil.

Excluding energy, inflation was higher in Nova Scotia (+3.3%), Prince Edward Island (+2.6%), New Brunswick (+2.6%), and Newfoundland and Labrador (+2.4%) in September, compared with the national movement (+2.1%). At the provincial level and on a year-over-year basis, rent prices rose at the fastest pace in Atlantic Canada.

Economists surveyed by Bloomberg had expected the headline inflation rate to tick up to 3.2% in September from 3% in August, and yearly change for the Bank of Canada’s preferred core measures to remain the same.

The Canadian dollar trimmed its gains after the report. It still remained stronger on the day against the US currency, trading 0.3% up to C$1.4101. The loonie has advanced about 1% so far in October.

Traders in overnight swaps placed the odds of a rate hike this month at nearly 70% prior to the CPI release, and edged back slightly after the smaller-than-expected increase in price growth.

The 12-month change in the Consumer Price Index (CPI) and CPI excluding gasoline
Source: all above data is provided by Statistics Canada

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader resurgence in underlying inflation. While food and shelter continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid slowing domestic demand.

At the same time, recent labour force data has underscored some of the economic vulnerabilities facing Canada as the US trade war drags on. Employment fell in Canada by 41, 200 since the end of last year, the largest year-to-date loss since the 2009 financial crisis, excluding 2020 during the Covid-19 pandemic.

The duration of the disruption in the Strait of Hormuz remains a key risk. The longer the shipping route remains closed, the longer energy prices are likely to remain elevated. Even so, the September data support our base-case scenario that the Bank of Canada will remain on hold at its October 28 meeting. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent. Still, for now, underlying inflation trends in Canada remain consistent with a patient, wait-and-see approach.
Written by

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Rising-Rate Jitters Sidelined Buyers in September, Tempering Sales For The Remainder Of This Year

General Kim Franz 16 Oct

The number of home sales recorded over the Canadian MLS Systems fell by 2.3% m/m in September as inflation fears triggered the biggest bond selloff in years. Rising fixed mortgage rates have spooked potential buyers, even as home prices continue to fall.

“After a four-month run of modestly positive progress on demand, supply, and prices, many of Canada’s housing markets took a step back in September. This was hardly surprising given the latest jump in fixed mortgage rates, and with the Bank of Canada now widely expected to follow with a rate hike before the end of the year,” said Shaun Cathcart, CREA’s Senior Economist. “With housing affordability already stretched, the big question going forward is how much farther will the Bank have to go to keep a lid on inflation next year? Until that becomes clearer, this fresh round of uncertainty will likely send some buyers back to the sidelines.”
New Listings

New listings resumed their downward trend in September following a rebound in August, falling 1.8% on a month-over-month basis in September 2026. Overall, new supply has generally been declining since early 2025.

“In a repeat of what we saw earlier this year when the start of the spring market coincided with a jump in mortgage rates, the start of the fall market has likewise been met with an even larger jump in fixed rates,” said Garry Bhaura, CREA Chair. “While that makes the task harder for prospective home buyers as it relates to a mortgage, it will also likely mean more homes to choose from and more negotiating power. For sellers, a well-thought-out pricing strategy will become even more important.”

With the decline in sales only just outpacing the drop in new supply in September, the national sales-to-new listings ratio eased slightly to 48.8% compared to 49.1% in August. The long-term average for the national sales-to-new listings ratio is 54.7%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

Slightly more than 200,000 properties were listed for sale on all Canadian MLS® Systems at the end of September 2026, up 1.8% from the same time last year and a little above the long-term average. Overall supply has held steady at historical average levels since spring 2025.

National inventory was 4.9 months at the end of September 2026, up slightly from this summer but in line with the long-term average. One standard deviation above or below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.
Home Prices

The National Composite MLS® Home Price Index (HPI) edged down 0.4% from August to September. The monthly decline following four months of stable prices reflected a fresh step down for prices in Ontario where demand softened in September, alongside the ongoing moderation of offsetting price gains on the Prairies, in Quebec, and on the East Coast.

The non-seasonally adjusted National Composite MLS® HPI was down 3.4% compared to September 2025, marking the first time that the year-over-year decline had grown larger since January.
Bottom Line

While we do not expect a Canadian rate hike at the October 28 meeting of the Bank of Canada, the odds currently favour a 25-basis-point increase in the overnight policy rate at the last meeting of this year on December 9. To be sure, the Canadian inflation-growth picture favours a continued pause in BoC action; worldwide pressure for a more aggressive inflation response will likely drive Canadian policy as well.

The war with Iran is unlikely to end soon, keeping upward pressure on oil prices, which is spilling over into the cost of a wider array of goods and services. The GTA and the GVA continue to suffer relatively weak demand in the condo sector. CREA has reduced its forecast for home sales in 2026-2027.

Key to the October 28th action will be the CPI data released on Monday, along with the business and consumer outlook surveys. The latest inflation data will be crucial to the bank’s decision, with the headline yearly change in the consumer price index holding near 3% for months, a level Governor Tiff Macklem has called “too high”. Markets put the odds of a hike at the end of the month at about 30% as of Friday morning, with most economists not seeing the central bank tightening borrowing costs just yet, though hikes are likely to start sometime in 2027.
Written by

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

The Very Weak September Jobs Report For Canada Will Give the BoC Second Thoughts About Hiking Rates

General Kim Franz 13 Oct

Employment fell in September, continuing a stream of lacklustre labour force surveys. Canadian jobs fell by 68,300, wiping out all of this year’s job gains as the trade war with the U.S. drags on and the Iran war continues. The employment rate fell for a second consecutive time by 0.2% percentage points to 60.6%. Roughly half of the employment loss was in full-time work (-35,000; -0.2%) and half in part-time work (-33,000; +0.9%).

The employment decline was concentrated among youth aged 15 to 24 (-48,000; -1.8%) as well as women aged 25 to 54 (-28,000; -0.4%). In September, public sector employment fell by 70,000. This was the fourth consecutive monthly decline for the sector. On a year-over-year basis, the number of public sector employees was down by 119,000 (-2.6%), with most of the decline attributable to employment in educational services.

The number of private sector employees was little changed for a second consecutive month in September, but it was up by 163,000 (+1.2%) compared with 12 months earlier.

Self-employment edged down in September (-23,000; -0.8%). This follows an upward trend from April to July. Year on year, self-employment was up by 51,000 (+1.9%).
The unemployment rate rose 0.1 percentage points to 6.5% in September. Earlier in the year, it reached a recent peak of 6.9% in April, before declining to 6.4% in July and August. The unemployment rate in September was the same as it was at the start of the year (6.5% in January).

The layoff rate was 0.7%, similar to the rate observed a year earlier (0.6%) and the average during the period from 2017 to 2019 (0.6%) (not seasonally adjusted).

The job-finding rate was 30.6% in September, down from 32.8% 12 months earlier and below the average of 36.5% during the period from 2017 to 2019.

The labour force participation rate fell 0.2 percentage points to 64.8% in September. This was the lowest level since December 1997 (when it was also 64.8%), excluding 2020 during the COVID-19 pandemic. Year over year, the participation rate fell 0.4 percentage points in September 2026, largely due to population aging.

In September 2026, people aged 65 and older accounted for 23.2% of the working-age population in the Labour Force Survey, up from 20.5% in September 2019. In comparison, this share was 14.8% at the turn of the millennium. The upward trend in was briefly paused in 2023 and 2024, as sharp increases in permanent and temporary immigration offset the aging of the population. However, in 2025 and into 2026, the trend towards an aging population resumed.

By sector, fewer people worked in educational services, Health care and social assistance, and manufacturing. Regionally, employment declines were posted in Quebec and British Columbia, while energy-heavy Alberta enjoyed continuing job gains. Alberta’s unemployment rate was 6.4% in September, down both month-over-month (-0.4 percentage points) and year-over-year (-1.3 percentage points).
Among the three largest census metropolitan areas, the unemployment rate rose by 0.7 percentage points to 6.6% in Montréal, offsetting a similar-sized decline in the previous month. In Vancouver, the unemployment rate fell 0.6 percentage points to 6.0% in July. The unemployment rate in Toronto was little changed at 6.7%; however, it was down from a recent high of 9.0% in July 2025.

While the job losses last month were driven by the public sector, the cumulative decline in employment since the start of the year paints a sluggish picture of the labour market. Employment fell in Canada by 41,200 since December 2025, the largest year-to-date loss since the 2009 financial crisis, excluding 2020 during the Covid-19 pandemic.

The September data also gives the first look at the impact of so-called Section 338 tariffs on the Canadian economy. New 50% US tariffs on $20 billion of Canadian goods took effect on Aug. 22 after the breakdown in trade negotiations between the two countries, while retaliatory tariffs on US goods kicked in on Sept. 8. Job losses in August and September total 110,000.

The trade war escalation is expected to weigh on the economy, but the Bank of Canada has put more emphasis on inflation risks, as the Iran war continues to drive up energy prices.

Bottom Line

The Bank of Canada will likely hold off on a rate hike at its October 28 meeting, especially if the inflation data released on October 19 brings no nasty surprises. The Bank of Canada will also publish its Business and Consumer Outlook Survey that day, which will estimate inflation expectations.

Written by

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centre

Economic Insights from Dr. Sherry Cooper

General Kim Franz 7 Oct

The Federal Open Market Committee, the Bank of Canada’s equivalent of the Governing Council, announced last week that it would raise the overnight federal funds rate by 25 basis points to 3.75%-to-4.0%.

The key question is whether it’s a one-off or the start of something deeper and longer.
We suspect the latter. The Fed has more work to do. Resilient U.S. growth, easy financial conditions, and persistent inflation pressures point to another hike in December and further tightening in the first half of 2027.

Under Kevin Warsh, the Fed appears increasingly willing to base policy on observable outcomes rather than uncertain model estimates. US growth remains above trend, unemployment is low, initial unemployment insurance claims are below 200,000, financial conditions remain supportive, capital spending is booming, and inflation has exceeded its 2% target for five and a half years. These conditions explain the unanimous hike and the signal of another hike before year-end, while reinforcing perceptions of the Fed’s political independence and credibility as the Fed and Treasury pull in opposite directions.

The Iran war has been more than an energy shock; it is another global supply-chain disruption. Although far smaller than COVID, it is still significant—and its timing could hardly be worse after years of central-bank inflation overshoots.

Commodity prices are surging, suggesting a broader and more powerful shock than the initial response to Russia’s 2022 invasion of Ukraine. Metal demand, energy demand, and agricultural prices have all increased, contributing supply strain, resulting the overall inflation.

So where does this lead the Bank of Canada when they next meet on October 28? I am sorry to say that the odds favour a rate hike, although it is a close call. I would assign roughly a 60% probability to a hike and a 40% chance of another (the eighth) rate hold. Markets are taking a similar view. As of September 21, CORRA (Canadian Overnight Repo Rate Average)- based pricing implies about a 63% chance of an October hike. The Fed’s rate hike reinforces a broader global tightening cycle.

Canadian headline inflation, though below the US, is still running at a 3% pace. High oil and refined-product prices are lasting longer than the Bank of Canada expected. The longer they remain elevated, the greater the danger that transportation, food and other business costs begin spreading into broader inflation. Canadian counter-tariffs will add some upward pressure to costs, even if the initial effect is modest. Q2 growth was a surprisingly strong 3.3% annualized, with gains in consumption, exports and business investment. Waiting until December could allow inflation expectations and pricing behaviour to become less well anchored.

The Bank’s September deliberations were quite revealing: The Governing Council explicitly said that if energy inflation began spreading into other CPI components, “it could require a monetary policy response.”

Bottom Line

The Bank will not hike simply because the Fed did. It will hike if the October Monetary Policy Report concludes that high energy prices and tariffs are beginning to produce persistent, broader inflation.

My call today: October 28: 25-basis-point hike to 2.50%, accompanied by cautious language and no commitment to a continuing series of hikes.

The decisive evidence will be the next two CPI reports—especially CPI excluding gasoline, core measures and services inflation—along with September employment, wage growth and the Bank’s revised estimate of the output gap. A further weak employment report combined with core inflation remaining near 2% would probably produce another hold.

Written by

Dr. Sherry Cooper