Canadian inflation reached 3.1% in September, but the report that matters for the Oct 28 Bank of Canada decision is the one underneath the headline. Statistics Canada reported that CPI rose from 3.0% in August, below the 3.2% that markets expected, and that all three Bank of Canada core measures eased. This was the last price data the central bank sees before it decides.
Gasoline did the work. Pump prices were 27.8% higher than a year earlier, up from 22.8% in August, and overall energy inflation rose to 19.0% from 15.4%. Monthly CPI rose only 0.1%, after a 0.1% decline in August.
A Supply Shock, Not Yet a Price Spiral
The distinction the Bank of Canada draws is between a one-time price level shift from energy and a broad acceleration in prices. CPI excluding gasoline slowed to 2.2% from 2.4%. CPI-common fell to 2.4% from 2.6%, CPI-median slipped to 1.9% from 2.0%, and CPI-trim eased to 1.8% from 1.9%. Grocery inflation dropped to 1.7% from 2.8%, its weakest reading since May 2024.
The soft spots are not everywhere. Shelter inflation rose to 1.8% from 1.5% on higher fuel oil, home insurance and maintenance costs, and rent inflation held at 2.8%. CPI-common at 2.4% also sits above the 2% target, so underlying inflation has not fully returned to it.
Headline CPI has run at 2.8% or higher for six consecutive months, a climb that tracks gasoline, while the core measures the Bank of Canada watches most closely have eased. The gap between the two is the policy question.
Gasoline prices rose 27.8% from a year earlier in September while CPI excluding gasoline eased to 2.2% from 2.4%. The Bank of Canada targets 2% inflation within a control range of 1% to 3%.
The Labour Market Is Doing Part of the Work
The jobs report on Oct 9 changed the odds before the CPI release did. Statistics Canada reported that the economy shed 68,000 positions in September and that the unemployment rate rose to 6.5%. LSEG data cited by Reuters put the odds of a quarter-point increase on Oct 28 at about 25%, down from roughly 40% within hours of the release.
Bay Street economists lined up behind a hold. CIBC expects the Bank of Canada to keep the policy rate unchanged at both remaining meetings this year, and five economists surveyed by Canadian Mortgage Professional expect a hold on Oct 28. The policy rate stands at 2.25%, and the September CPI miss on both headline and core strengthens that case.
The pricing further out is different. After the jobs report, markets still priced a December increase at 88%, according to the Canadian Mortgage Professional report, and as of early October money markets priced roughly 100 basis points of increases over twelve months. The decision on Oct 28 is therefore less about the rate itself than about the language that comes with it.
What Would Change the Call
Governor Tiff Macklem set out the condition on Oct 16. The Bank of Canada has not raised rates, he said, and has been looking through the increase in energy prices, but the longer energy prices stay elevated, the harder that gets. Brent crude closed above $109 on Friday, its highest settlement since May, so the clock he described is running.
Two sets of evidence would turn a hold into a hike. The first is second-round effects, which would show up as CPI-common and shelter rising rather than easing. The second is expectations, and the Bank of Canada was due to release its quarterly business and consumer surveys on Oct 19 to show whether firms plan to pass higher costs on to customers. Banking stocks were subdued on Friday after the governor remarks, a sign that markets read the speech as leaning hawkish.
The base case is a hold on Oct 28 with firm language on energy, and a December decision that depends on whether September core softness repeats in October. The tail risk is a sustained energy price that forces a hike before core inflation moves.