Canada Inflation Heats Up in September With Jump in Gas Prices — 2nd Update

By Robb M. Stewart

OTTAWA--Canadian inflation quickened slightly last month with a jump in energy costs, though there remains no sign the spike in oil has broadened into wider price pressures.

The consumer-price index rose 0.1% in September, driving the annual pace to 3.1% in September, Statistics Canada said Monday. That pushes inflation just above top end of the 1% to 3% window that the Bank of Canada aims for, after holding steady at 3% in August.

Still, the pace was a tick below the 3.2% pace most economists had anticipated. And inflation excluding gasoline cooled to 2.2% in September from 2.4% the month before. The measures preferred by the Bank of Canada also slowed, with trimmed mean and weighted median gauges of underlying inflation averaging a six-year low 1.85% annually after remaining at 1.95% in August.

Softer inflation for the month undercuts market pricing that has increasingly pointed to an interest rate increase from the central bank at next week's policy meeting, particularly following comments over the weekend by Bank of Canada Gov. Tiff Macklem that were viewed as hawkish and focused on still-elevated energy prices and risks to inflation expectations.

Most economists anticipate rates will rise if oil prices don't retreat but debate whether policymakers will look to be proactive now given little sign that tensions in the Middle East will disappear soon or they will continue to wait things out, given continued excess slack in the economy and a weakened job market in recent months.

"The Bank of Canada will be pleased to see no strong evidence that higher energy costs in recent months are being passed on to consumers," said Charles St-Arnaud, chief economist at Servus Credit Union and a former Bank of Canada economist. "With no signs of inflation broadening, nothing in today's report should concern the Bank of Canada. Nevertheless, with fuel prices remaining elevated, the Bank of Canada will remain concerned about potential spillovers to other prices in the economy."

Arguing for the central bank to leave its policy rate unchanged an eighth time in a row, the share of the consumer basket that has seen annual price growth above 3% narrowed to 29.2% in September. That compares with 37.9% the month before and 37.3% a year earlier.

Still, prices for energy sped up sharply, rising 19% compared with a year early following a 14.5% gain in August after crude oil climbed to a four-month high.

Prices for gasoline jumped 27.8% last month, though that was held back from rising even more steeply by the switch at the pumps to the less expensive winter blend. Prices for fuel oil and other fuels soared 57.8% in September, following a 43.7% increase in August.

The rise in fuel prices, along with faster price growth in homeworkers' home and mortgage insurance and maintenance and repair costs, helped push up shelter prices 0.3 percentage point to 1.8%, though that remains below the 2% midpoint of the Bank of Canada's inflation target. The rise in rent prices was steady.

Helping contain inflation were smaller year-over-year increases for travel tours and groceries. Prices for food bought at stores were up 1.7%, the smallest rise since May 2024, following a 2.8% gain in August.

The central bank is set to update its economic projections when it next decides on interest rates later this month. Its most recent forecast had anticipated inflation would cool to about 2.5% in the third quarter of the year and the average of its preferred measures would come in at a softer 2.1%.

"The Bank of Canada increasingly faces a difficult trade-off," said Peter Shannon, senior economist at KPMG Canada. "Soft employment, an economy still operating below capacity and slow population growth argue against tightening. However, energy prices have risen sharply since the bank's last meeting and headline inflation is likely to remain around 3% well into 2027 absent a meaningful de-escalation in the Middle East."

Write to Robb M. Stewart at robb.stewart@wsj.com

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October 19, 2026 11:24 ET (15:24 GMT)