Canada saw a rise in its annual inflation rate to 3.1% in September, as reported by Statistics Canada on Monday. This increase puts the Bank of Canada in a challenging position leading up to its upcoming rate announcement. The consumer price index in September showed a 0.1% uptick compared to August, with the spike attributed to elevated benchmark oil prices due to the Middle East conflict. While gasoline prices surged by 27.8% year-over-year, other areas did not experience significant inflation, according to CIBC’s chief economist Avery Shenfeld.
Excluding gasoline, consumer prices went up by 2.2% year-over-year in September. The average price for a liter of regular gasoline across Canada reached $1.824, marking a nearly 33% increase over the previous year. Additionally, diesel prices surged by almost 80% over the past year, according to Kalibrate data.
Grocery prices increased by 1.7% year over year in September, down from the 2.8% rise seen in August. This decrease was mainly due to lower prices for fresh vegetables and a decline in the “sugar and confectionary” category. Despite this slowdown, grocery prices have risen by 33.0% since September 2020, as per StatCan.
Shelter prices saw a 1.8% year-over-year increase, up from 1.5% in August. Statistics Canada’s core inflation measures slightly eased in September on a monthly basis, which are closely monitored by the Bank of Canada. The September consumer price index was expected to rise by 3.18% year over year, as per a Bloomberg survey of 12 economists.
The recent inflation data presents a dilemma for the Bank of Canada, as policymakers must navigate between addressing energy-linked inflation and potential economic weaknesses, such as in the job market. Bank of Canada Governor Tiff Macklem cautioned about the impact of persistently high global energy prices on inflation expectations. The central bank anticipates inflation to average 3.7% over the next year, according to the latest Business Outlook Survey.
Economists like Shenfeld suggest that the ongoing energy market turmoil poses challenges without clear solutions, particularly concerning threats to oil shipping in the Strait of Hormuz. The decision on interest rates remains closely contested, with varying expectations on whether the central bank will raise rates to curb inflation. RBC economist Abbey Xu notes that energy costs have not significantly affected overall prices in the economy.
The Bank of Canada is expected to maintain its current overnight rate for the rest of 2026 before gradually increasing rates in 2027. Despite recent economic indicators, the central bank is closely monitoring inflation expectations and broader economic conditions to gauge the necessity of preemptive measures in response to evolving market dynamics.