Canada lost 68,000 jobs in September and the unemployment rate rose to 6.5%, according to Statistics Canada, while August headline inflation held at 3.0%. Two readings that point in opposite directions leave the Bank of Canada with a decision on October 28 and a harder one in December. All five economists quoted by Mortgage Professional America expect a hold at the October meeting, with the overnight rate at 2.25%.
Markets agree for now. The odds of an October hike fell to about 25% from roughly 40% before the jobs report, according to The Canadian Press, while Andrew Hencic of TD Economics put the market's December hike pricing at 88%. The distance between those two numbers is the real story, and the September CPI release on October 19 sits in between.
Core Inflation Gives the Bank Room to Wait
August headline CPI held at 3.0%, unchanged from July, with CPI excluding gasoline at 2.4%, up from 2.2%, according to BabyPips coverage of the Statistics Canada release. The Bank of Canada's preferred core measures run well below that. CPI-trim stood at 1.9% and CPI-median at 2.0% in August, according to Bank of Canada data.
The dark line is CPI-trim and the gold line is CPI-median, the two core measures the Bank of Canada watches, and the dashed grey line marks the 2% target. The dashed red line marks August headline CPI of 3.0%, which sits above both core measures because of energy prices. Source: Bank of Canada, Statistics Canada.
Both measures have eased steadily from 2.4% and 2.5% in January, and both have now sat at or near the 2% target for three months. CPI-common, the third core gauge, remains higher at 2.6%. The Bank held at 2.25% on September 2, its seventh straight hold, and Governor Tiff Macklem struck a more hawkish tone, warning that inflation risks had tilted upward, according to BabyPips. The gap between headline and core is energy, and energy is the part the Bank is least able to move.
The Job Losses Are Real but Concentrated
September was the steepest monthly loss since February, against a consensus forecast for a gain of 9,200, according to The Canadian Press. Employment has fallen a net 41,200 jobs so far in 2026, compared with a gain of 211,300 over the same period of 2025, according to Reuters. Losses were concentrated in the public sector, which has declined for four straight months, with educational services down 35,000, and in Quebec, which lost 49,000.
Youth employment fell 48,000, about 70% of the total decline, and RBC's Claire Fan cautions against overreading the headline for that reason. The unemployment rate remains 0.6 percentage points below its level a year earlier. Manufacturing lost 12,700 jobs, a modest figure for the sector most exposed to U.S. tariffs, and Alberta added 23,000. The participation rate fell 0.2 points to 64.8%, the lowest in 29 years outside the pandemic, which tempers the unemployment rate itself.
December Is Where the Argument Sits
BMO's Robert Kavcic said the August and September reports push back hard against a hike in the short term, and that several weak inflation reports in a row would be needed before the Bank leans toward tightening. KPMG still expects the policy rate to reach 2.5% by year-end, and KPMG's Daniel Hyun said the jobs report casts some doubt on its call for a December hike.
Average hourly wage growth for permanent employees rose to 2.3% from 2.0%, according to Reuters, which gives the Bank little wage pressure to point to. The Canadian dollar briefly fell below 70 US cents, its lowest since early 2025. If the September CPI on October 19 shows core measures holding near 2%, the case for waiting strengthens. If it shows broadening, December reopens.