Canada’s Strong September CPI Cast Doubts on Potential BOC Cut

Canada’s September CPI report reflected hotter than expected inflationary pressures for the month, leading market players to tone down dovish BOC expectations.

Headline inflation rate rose to 2.4% year-over-year in September, up from 1.9% in August, as gasoline prices declined less sharply and travel tour costs rebounded. On a month-over-month basis, headline CPI rose 0.1% instead of dipping by another 0.1%.

Core measures showed that roughly one-third to 40% of the CPI basket is experiencing price growth above 3-4% on an annualized monthly basis, suggesting inflation pressures remain relatively contained but not fully extinguished.

Key Takeaways

• Headline CPI increased to 2.4% y/y in September from 1.9% in August, exceeding consensus expectations of 2.2%
• Core inflation measures remained elevated, with both trimmed mean and weighted median at 2.8% on a month-over-month seasonally adjusted basis
• Gasoline prices fell 4.1% y/y, a smaller decline than August’s 12.7% drop, contributing significantly to the headline acceleration
• Grocery prices rose 4.0% y/y, up from 3.5% in August, marking the fastest pace since the recent low in April 2024
• Travel tour prices declined just 1.3% y/y compared to a 9.3% drop in August, as seasonal factors and higher hotel costs during major events pushed prices up
• Rent inflation accelerated to 4.8% y/y from 4.5%, driven largely by Quebec’s 9.6% increase, particularly in Montreal
• On a monthly basis, CPI rose 0.1% (not seasonally adjusted) and 0.4% (seasonally adjusted)

Link to official Statistics Canada Consumer Price Index (September 2025) 

Gasoline prices rose 1.9% month-over-month in September 2025, following refinery disruptions and maintenance in both the United States and Canada. This contrasted sharply with September 2024, when prices fell 7.1% amid concerns about weakening economic growth in China and the U.S.

Grocery price inflation accelerated to 4.0% year-over-year, with notable increases in fresh vegetables (rising 1.9% after declining 2.0% in August) and sugar and confectionery (up 9.2% versus 5.8% previously). Fresh or frozen beef and coffee prices also contributed to the acceleration, partly reflecting supply constraints.

Shelter costs rose 2.6% y/y, with rent prices advancing 4.8% nationally despite mixed provincial dynamics. Mortgage interest costs increased 3.6% y/y, while homeowners’ replacement costs fell 1.4%, reflecting the offsetting dynamics within the shelter component.

Market Reactions

Canadian Dollar vs. Major Currencies: 5-min

The Canadian dollar rallied across the board following the hotter-than-expected inflation print, with the data likely prompting traders to reassess the odds of another BOC rate cut at next week’s meeting.

CAD/JPY posted the strongest gains, rising approximately 0.71% while GBP/CAD slipped roughly 0.41%. USD/CAD dipped 0.31% and AUD/CAD fell 0.22%, as gains against fellow commodity currencies were limited. Against the Kiwi, the Loonie quickly erased its winnings and even wound up 0.14% in the red a few hours after the CPI release.