September Inflation Hits 2.4% Driven by Gas and Grocery Costs

Inflation rose notably in September, Statistics Canada reported Tuesday, driven largely by year-over-year changes in gasoline prices and continued upward pressure on groceries. Annual inflation accelerated to 2.4% in September, up from 1.9% in August and slightly above most economists’ forecasts. The shift reflects smaller year-over-year declines in gasoline and persistent price gains in food and shelter costs.

Gasoline prices remain lower than a year ago overall, mainly because of the removal of the federal consumer carbon price, but pump prices rose modestly from August to September. Because the year-over-year drop in gas prices was smaller in September than it had been in August, gasoline contributed to a higher headline inflation rate this month.

Food, rent, and travel costs increase

Canadians are still feeling pressure at the grocery store. Fresh vegetable prices moved back up, rising 1.9% year over year in September after falling the previous month. Sugar and confectionery costs also accelerated substantially, up 9.2% compared with a 5.8% increase in August. Statistics Canada highlighted that food price increases have generally trended upward since a recent low in April, with ongoing short supplies of beef and coffee cited as persistent drivers of higher grocery bills.

Accommodation and travel-related expenses also added to price pressures. National rent inflation edged higher to 4.8% year over year in September, up from 4.5% in August. While the pace of rent increases has moderated over the past year overall, monthly ups and downs continue to occur and can affect renters’ budgets. Travel tours experienced a rare month-over-month price gain in September, in part because hotel rates rose around major events in parts of Europe and the United States.

Some categories moderated the overall increase: clothing and footwear showed smaller annual price gains, which helped to offset part of the headline uptick.

Core inflation and the Bank of Canada’s outlook

September’s inflation figures are particularly significant because they are the Bank of Canada’s last full set of price data before the central bank’s upcoming interest rate decision on Oct. 29. At its last meeting, the Bank of Canada reduced its policy rate by a quarter percentage point to 2.5%.

Measures of core inflation, which are designed to remove volatile items like energy and fresh food to show underlying price trends, remained stubbornly high in September, staying above the 3% mark. While the Bank of Canada uses these core readings to assess underlying inflation pressures, some policymakers and market observers have questioned how reliable those measures have been as signals for monetary policy.

In commentary following the data release, CIBC senior economist Andrew Grantham told clients that a broader set of core inflation indicators showed underlying price pressures that were broadly in line with August’s readings. Grantham argued that, despite the stronger headline figure, the underlying trend does not suggest dramatically more inflationary pressure, which could leave the Bank of Canada positioned to follow through with a planned quarter-point rate cut at its next meeting.

Meanwhile, Stephen Brown, deputy chief North America economist at Capital Economics, said the stronger-than-expected inflation report combined with a robust jobs report for September should temper expectations for immediate rate cuts. Nevertheless, Brown noted that Capital Economics still leans toward another rate cut in the near term, citing recent comments from Bank of Canada governor Tiff Macklem expressing concern about a soft jobs market.

What this means for consumers and markets is a continuation of uncertainty. In the short term, households facing higher grocery and rent costs may feel squeezed, while fewer or delayed rate cuts could influence borrowing costs and mortgage decisions. For policymakers, the challenge remains to balance evidence of persistent core inflation with signs of a cooling labour market and other mixed signals in the economy.

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