Canada's headline CPI rose to 3.1% in September, with a 0.1% monthly gain. The jump in fuel did the heavy lifting as gasoline prices climbed 27.8% from a year earlier, quickening from 22.8% in August.
Food inflation cooled. Grocery prices rose 1.7% year over year, down from 2.8% in August, the smallest annual increase since May 2024 and the second straight month that grocery inflation ran below the overall rate. Shelter costs picked up to 1.8% annually from 1.5%, reflecting higher fuel and faster increases for homeowners' insurance on homes and mortgages, plus maintenance and repairs.
Price pressures narrowed under the hood too. The share of CPI items rising 3% or more fell to 29.2% in September from 34.2% in August.
Stripping out food and energy, inflation was steady at 2.1%. The Bank of Canada's preferred core gauges also eased, with the median at 1.9% and the trim at 1.8%. Economists surveyed by Bloomberg had looked for headline CPI at 3.2% and expected those core metrics to be unchanged.
Markets nudged back bets on a near term hike after the softer than expected print. Overnight swaps had put the odds of a move this month near 70% before the release, and those odds ebbed a bit after. The Canadian dollar shed some of its earlier advance but was still up 0.3% on the day at C$1.4101 per US dollar, and it has gained about 1% so far in October.
When prices and policy feel uncertain, stay clear on the trends with the free Market Briefs newsletter every weekday.
On Saturday, Governor Tiff Macklem said there are growing signs that higher oil prices are supporting Canada's growth, and added that the bank's inflation outlook will probably be revised higher when the monetary policy report is released later this month with updated projections. He has also cautioned that delaying rate increases could require lifting the policy rate faster and to a higher level later. "Following the hawkish tone of Governor Macklem's comments over the weekend, markets had moved to price in a greater chance of a rate hike later this month, but today's CPI data suggests that there is little rush and policymakers can take more time to assess how US trade relations and the impact of new tariffs develop before raising rates," wrote Andrew Grantham of Canadian Imperial Bank of Commerce, where he serves as a senior economist.
The Bank of Canada's business and consumer outlook surveys pointed to higher inflation expectations and more signs that companies plan to pass through rising input costs. Most responses came before US trade talks collapsed; answers gathered afterward indicated that newly imposed tariffs were dragging on business sentiment.
The central bank has become more focused on inflation risks tied to the Iran war while still tracking the drag from US tariffs. Alongside the cooler core readings, the CPI report likely offers some breathing room ahead of next week's rate decision. Labor data have also flagged vulnerability: employment is down by 41,200 since December 2025, the biggest year to date decline since 2009, excluding 2020 during the pandemic.
TD senior economist Leslie Preston summed up the backdrop: "There is little evidence higher energy costs are bleeding through to broader price pressures, which remain mild."
In plain English: headline inflation is getting a lift from the pump, but the core trend cooled. That mix trimmed hike odds a touch, steadied the loonie, and keeps attention on next week's decision and this month's updated forecast. For your portfolio, oil, trade policy, and a softer jobs backdrop remain the swing factors for rates and Canadian risk assets in the near term.
If you want a quick read to make sense of economic headlines, sign up for free Market Briefs today.
