Canadian households are forming their view of inflation ahead of the Bank of Canada decision on October 28, and one line item is doing most of the talking. Statistics Canada reported on October 19 that the consumer price index rose 3.1% year over year in September, up from 3.0% in August. Excluding gasoline, the same basket rose 2.2%, down from 2.4%.
Gasoline rose 27.8% over the same twelve months, compared with 22.8% in August. That single component accounts for the gap between a headline reading just above the top of the Bank of Canada 1% to 3% control range and an underlying reading close to the 2% target.
Statistics Canada attributed the September acceleration to higher crude oil prices, which reached their highest level since May amid conflict in the Middle East. The Canadian Press reported the December crude contract near US$97 a barrel on October 20.
The Availability Heuristic Does the Arithmetic
Amos Tversky and Daniel Kahneman described the availability heuristic in 1973: people judge how common or how likely something is by how easily examples come to mind. A gasoline price is posted on a sign, changes visibly from week to week, and is paid in a single transaction. Rent, insurance premiums and restaurant prices arrive on different calendars.
Olivier Coibion and Yuriy Gorodnichenko made the macroeconomic version of the argument in a 2015 paper, finding that household inflation forecasts have tracked oil and gasoline prices closely and attributing that to the high visibility of gasoline.
The size of the effect is contested. Lutz Kilian and Xiaoqing Zhou of the Federal Reserve Bank of Dallas estimated, in a 2022 paper in the Journal of Applied Econometrics, that gasoline price shocks account for 39% of the variation in household inflation expectations since 1981. That is a large share, and it is also well short of all of it.
The Asymmetry Is the Costly Part
The Federal Reserve Bank of San Francisco made the mechanism more specific in an Economic Letter published on August 31, 2026. Using household survey responses, the letter found that inflation expectations rise when households expect gasoline prices to climb, and that the response is much stronger when expected gas price growth increases than when it decreases.
The letter added that expectations may not retrace those increases when households later expect the run-up in gas prices to unwind. That ratchet is consistent with the loss aversion Kahneman and Tversky documented in 1979, in which a loss weighs more heavily than a gain of the same size. A household that has absorbed a 27.8% increase at the pump registers further increases as fresh losses and treats declines as a partial recovery of something already taken.
Survey data from the Bank of Canada fit the pattern. Its latest Canadian Survey of Consumer Expectations found long-term inflation expectations rose to match short-term expectations, and the Bank business surveys showed firms raising their inflation expectations one and two years ahead. Most responses to both were collected before the latest trade escalation.
What the Pump Price Does Not Show
The rest of the basket tells a calmer story. Excluding gasoline, the CPI has run between 2.0% and 2.4% every month since March, after reading 3.0% in December and January, when the temporary GST/HST break was still distorting the year-earlier base.
Headline CPI has run above the measure excluding gasoline every month since March, and the gap has stayed between 0.6 and 1.0 percentage points since April, while gasoline held at 20.5% or higher year over year.
Headline CPI crossed above the ex-gasoline measure in March 2026, while gasoline ran between 20.5% and 33.2% year over year from April to September. Readings from December 2025 to February 2026 reflect the temporary GST/HST break in the year-earlier base.
Why the Concern Is Rational and the Generalization Is Not
None of this makes household concern irrational. Gasoline is a real cost, and a 27.8% increase is a real loss of purchasing power. Statistics Canada reported that fuel oil and other fuels rose 57.8% year over year in September, with the larger effect in Atlantic Canada, where that fuel is more widely used.
The bias lies in the generalization: treating the most visible price as a proxy for all prices. The research suggests that generalization is common, measurable and slow to reverse. Scotiabank Economics wrote on October 19 that remarks from Governor Tiff Macklem had sharply lifted pricing for an October hike. The Bank of Canada decision arrives with a Monetary Policy Report and a policy rate of 2.25%, which the Bank held on September 2.
If expectations are formed at the pump rather than in the basket, the next move in crude oil will shape household behaviour as much as the next CPI release, which Statistics Canada schedules for November 16.