Surging prices and sticky core inflation challenge expectations for another rate cut this month
Canada’s inflation rate surged more than expected in September, raising the stakes for the Bank of Canada’s upcoming interest rate decision—a development closely watched by wealth managers and investors seeking clarity on the path for rates and asset values.
According to Statistics Canada, annual inflation accelerated to 2.4 percent in September, up from 1.9 percent in August, with the jump driven primarily by a smaller decrease in gasoline prices and persistent increases at the grocery store.
Grocery prices rose four percent year-over-year, the fastest pace since April 2024, with fresh vegetables, sugar, beef, and coffee cited as key drivers amid ongoing supply constraints.
StatCan also noted that rent prices accelerated to 4.8 percent, underscoring continued pressure on household budgets.
The Bank of Canada’s preferred core inflation measures—CPI-median and CPI-trim—remained stubbornly above three percent, at 3.2 and 3.1 percent respectively, as reported by Reuters.
Economists such as Andrew Grantham from CIBC have observed that policymakers are now considering a broader range of data, rather than relying solely on these core metrics, to assess underlying inflation trends.
Despite the inflation surprise, market expectations for a rate cut remain strong. LSEG Data & Analytics indicated that the odds of a 25-basis-point cut at the Bank’s October 29 meeting climbed to over 86 percent after the inflation data release, though some sources reported slightly lower odds.
RBC economist Abbey Xu pointed to a higher unemployment rate, falling inflation expectations, and the removal of most Canadian counter-tariffs as factors that could reinforce the case for a rate cut, stating, “Our base case assumes one more reduction in the overnight rate next week in October”.
However, some analysts, including BMO’s Doug Porter, cautioned that the stronger inflation reading “will make the Bank of Canada’s decision a bit more interesting next week than previously expected,” suggesting that the central bank may hesitate to cut rates again so soon.
