Canadian Inflation Rises to 3.1% Ahead of Bank of Canada Decision
Key Facts
Canada's annual inflation rate rose to 3.1% in September, according to a Reuters report, ahead of the Bank of Canada's October monetary policy decision. September's reading is the last consumer price data before the decision, the agency said, making it the latest inflation reading ahead of the bank's forthcoming announcement. The central bank held its target for the overnight rate at 2.25% at its previous decision, according to its official statement. The rise in inflation comes as the bank continues to warn that energy price pressures could spread to other goods and services. These pressures coincide with weak business hiring intentions and consumer spending plans, according to two central bank surveys on economic conditions and expectations.
In its statement accompanying the previous rate decision, the Bank of Canada linked the risk of broader price pressures to persistently high oil prices and refining margins. It warned that the longer these increases persist, the greater the likelihood their effects would spread to prices of other goods and services, beyond energy itself. The bank said their persistence increases the "risk of spillovers to prices of other goods and services," warning of price pressures spreading through the economy. In a September speech, the central bank also addressed the limits of monetary policy in dealing with tariffs and energy prices. It said "monetary policy cannot offset the effects of tariffs or influence global energy prices," outlining the constraints facing its tools.
For businesses, the Bank of Canada's Business Outlook Survey showed that inflation expectations declined overall from the previous quarter but remained elevated. The bank described the shift by saying "businesses' inflation expectations declined overall, but remain elevated," combining relative improvement with continued concern over prices. By contrast, consumers' long-term inflation expectations rose, according to a separate central bank survey. Those expectations moved close to their already elevated short-term expectations, rather than remaining below them. Business and consumer expectations thus moved in different directions, with the former declining from the previous quarter and the latter rising over the longer term.
On economic activity, the business survey showed some improvement in demand, according to the Bank of Canada, alongside continued weak hiring intentions. Describing companies' plans, the central bank said "business hiring intentions remain weak," despite the improvement they reported in demand. For households, the consumer expectations survey showed spending plans deteriorating from levels the bank described as already weak. The decline in those plans coincides with households' long-term inflation expectations rising to a level close to their elevated short-term expectations. These developments precede the October meeting as the two surveys together show persistently elevated price expectations among businesses and consumers, alongside weak hiring and spending plans.
In currency markets, the U.S. dollar fell about 0.42% to 1.4080 Canadian dollars in morning trading on the day the inflation data were released, according to Investing.com. The Canadian currency's gain came on the day of the September consumer price reading, ahead of the monetary policy decision later in the month. On the political front, voters in the oil-rich province of Alberta backed remaining in Canada, according to unofficial results reported by the Associated Press. Voters rejected starting a path toward separation after being asked to choose between remaining in the country and beginning a process toward a future vote on separation. The agency said "the referendum was not a direct vote on independence," clarifying the nature of the provincial ballot.
The Bank of Canada will announce its interest rate decision on 28 October 2026 at 09:45 Eastern Time, according to its official events schedule. The central bank will publish its Monetary Policy Report alongside the rate announcement, at the same time listed in its calendar. The bank had announced that it would use its new forecasting model, "PRIMA," for the first time as its main model in preparing the October report. In its September speech, it said the model would be used "as our main forecasting model in the October Monetary Policy Report." Following the decision and report, the bank will publish its summary of monetary policy deliberations on 10 November 2026 at 13:30 Eastern Time, according to the official schedule.