Canada's Core Inflation Is 1.8 Per Cent. Markets Are Pricing a Rate Rise Anyway
Headline CPI rose to 3.1 per cent in September on a 27.8 per cent jump in gasoline, while the Bank of Canada's preferred core measures fell to 1.8 and 1.9 per cent. The Bank's own surveys show consumers' five-year inflation expectations at a four-year high, and traders now put two-thirds odds on a hike on 28 October.
Canada's Consumer Price Index rose 3.1 per cent in the year to September, up from 3.0 per cent in August, Statistics Canada said on Monday. The acceleration came entirely from fuel. Gasoline was 27.8 per cent higher than a year earlier, against 22.8 per cent in August, and energy as a whole rose 19 per cent. Excluding gasoline the index rose 2.2 per cent, down from 2.4. Food bought from stores rose 1.7 per cent, the smallest annual increase since May 2024. On the month, prices rose 0.1 per cent unadjusted and 0.4 per cent seasonally adjusted, a touch below the 0.2 per cent consensus for the raw figure.
The Bank of Canada's two preferred measures of underlying inflation both eased. CPI-trim fell to 1.8 per cent from 1.9 and CPI-median to 1.9 per cent from 2.0, both now below the 2 per cent midpoint of the Bank's target range. Shelter inflation has been running near 1.5 per cent. Whatever is happening at the pump has not yet reached the rest of the basket.
A central bank that says it is "asking ourselves" whether to hike, two weeks after a jobs report that cost the economy 68,000 positions, is a central bank that has stopped guiding.
From the analysisThe same morning the Bank published its third-quarter Business Outlook Survey and Canadian Survey of Consumer Expectations, and those pointed the other way. Consumers' expectations for inflation five years ahead rose to 3.91 per cent, the highest since the second quarter of 2022, with expectations at every horizon moving higher after Canada-US trade talks collapsed at the end of August. More than 40 per cent of firms facing larger than normal cost increases plan to pass them on within 12 months and about a quarter already have. Almost a quarter of firms said it was too hard to say when inflation would return to target. The Bank's business outlook indicator edged up to minus 0.33.
Governor Tiff Macklem has done little to calm the hawks. "We haven't raised our rates yet. We've been looking through the increase in energy prices, but the longer this goes, the harder that gets. So we are asking ourselves that question. Are we going to have to raise rates?" he said, in remarks reported by Politico's Canada Playbook. Overnight swaps now price roughly a two-thirds chance of a rise at the 28 October decision, from a hold expected a fortnight ago. The policy rate has sat at 2.25 per cent since the Bank finished its cutting cycle, and the September jobs report showed 68,000 positions lost and unemployment at 6.5 per cent.
We think the Bank of Canada has the strongest case of any central bank in the Anglosphere for sitting still, and that raising rates into a 1.8 per cent core print and a shrinking labour market would be a mistake made to look decisive. The Fed is weighing a hike with core CPI at 2.6 per cent and rising; the RBA has already raised four times with inflation at 3.5; the Bank of England holds at 3.75 with inflation above 3. Canada's underlying inflation is below target and falling, its headline is an imported fuel price it cannot influence, and the one genuinely worrying number, the 3.91 per cent five-year expectation, is a credibility problem that a quarter-point move will not fix and a recession would worsen. The Bank's job this month is to explain why 3.1 is not 1.8, and to say what would change its mind.
There is a reason markets are not listening. A central bank that says it is "asking ourselves" whether to hike, two weeks after a jobs report that cost the economy 68,000 positions, is a central bank that has stopped guiding. The 28 October decision comes with a new Monetary Policy Report. If the forecast shows core staying below 2 per cent into 2027, a hike will need an explanation the data do not provide. If the Bank moves, it will be the first G7 central bank to raise rates with its own core measure below target. That is the fact to hold against whatever is said on the 28th.
The Semaform
Statistics Canada reported September CPI at 3.1 per cent on 19 October, with core measures at 1.8 and 1.9 per cent, while Bank of Canada surveys showed consumer five-year inflation expectations at a four-year high of 3.91 per cent ahead of the 28 October rate decision.
With core inflation below target and employment falling, the Bank of Canada should hold and explain why headline and core have diverged. A hike would be the first by a G7 central bank with its own core measure under target.
Governor Macklem says the longer energy prices stay high the harder it is to look through them, and the Bank's surveys show expectations and pass-through rising; markets and some economists now expect a hike on 28 October.
Sources
- Statistics Canada, The Daily: Consumer Price Index, September 2026, 19 October 2026
- Bank of Canada, Business Outlook Survey, Third Quarter of 2026, 19 October 2026
- Bank of Canada, Canadian Survey of Consumer Expectations, Third Quarter of 2026, 19 October 2026
- CBC News, Inflation rises to 3.1%, as fuel prices push higher: StatsCan, 19 October 2026
- Canadian Mortgage Trends (Bloomberg), BoC surveys show higher inflation expectations, passthrough, 19 October 2026
- Politico Canada Playbook, All eyes on Alberta, 19 October 2026 (Macklem remarks)
- Sox News, Canada's 3% Inflation Is a Warning, Not a Victory, 14 September 2026
A human editor is accountable for this analysis. Read our editorial standards, how we use AI, what the content labels mean, and how to ask for a correction.