OTTAWA — Canada’s annual inflation rate rose to 3.1 per cent in September as war in the Middle East continued to drive up gasoline prices, but economists say easing core inflation suggests higher energy costs have yet to spread widely throughout the economy.
Statistics Canada said Monday the acceleration in headline inflation was led by a 27.8 per cent spike in gasoline prices last month compared with a year earlier, despite the switch to the less expensive winter gas blend.
Excluding gasoline, however, consumer prices increased 2.2 per cent year-over-year in September after a 2.4 per cent rise in August.
BMO chief economist Douglas Porter said while soaring gasoline prices are pushing inflation above the Bank of Canada’s target, underlying price pressures remain relatively contained.
“The fact that a lot of measures of core inflation are holding steady at around two per cent suggests that the run-up in prices really is not spreading far and wide beyond the gasoline pump,” he said in an interview.
“Overall inflation actually came in a just a little bit lower than what had been expected and there were lots of somewhat encouraging developments.”
Economists had broadly expected inflation to accelerate to 3.2 per cent last month, up from three per cent in August, putting pressure on the Bank of Canada ahead of its next interest rate decision on Oct. 28.
Yet Porter said the consumer price index report on its own “does nothing to advance the case for interest rate hikes.”
The latest Statistics Canada inflation data showed moderation in grocery prices, with food purchased from stores up 1.7 per cent in September. That is the smallest yearly increase since May 2024.
Driving the slowdown was a 2.9 per cent drop in prices for fresh vegetables, while sugar and confectionery items fell 2.7 per cent.
Beef prices rose at a slower pace in September, up 8.7 per cent compared with an 11 per cent increase in August.
Despite the year-over-year slowdown, prices for groceries have jumped 33 per cent since September 2020.
September brought the yearly update to tuition fees, which rose 2.4 per cent following a 1.7 per cent increase in 2025, Statistics Canada said.
Even though most tourism-related sectors saw normal seasonal price drops, ticket prices for flights surged 19.4 per cent in September, primarily because of escalating jet fuel costs.
Meanwhile, September saw a wide divergence in inflation between regions.
For example, inflation for all three Maritime provinces was above five per cent amid heating oil spikes. The agency said fuel oil and other fuels surged 57.8 per cent in September, hitting consumers hard in Atlantic Canada where many homes are heated with oil.
Inflation in Ontario came in at 2.5 per cent in September, the lowest in the country.
Porter said the wide gaps reflect deep differences in housing markets, as well as the downward pressure on central Canada due to trade issues with the United States.
“We’ve got some really extreme regional variations across the country, and it’s showing up in the inflation numbers,” he said.
Statistics Canada said measures of core inflation, which offer a clearer picture of underlying price trends by filtering out big price swings, eased slightly last month.
The agency’s so-called CPI-trim, which excludes the biggest price increases and decreases, fell to 1.8 per cent year-over-year in September from 1.9 per cent in August. CPI-median, a measure of the midpoint of price changes across goods and services, declined to 1.9 per cent from two per cent.
Andrew Grantham, senior economist with CIBC Capital Markets, said in a client note that the “hawkish tone” of Bank of Canada governor Tiff Macklem’s comments over the weekend had raised market expectations of an interest rate hike later this month.
But the inflation report “suggests that there is little rush and policymakers can take more time to assess how U.S. trade relations and the impact of new tariffs develop before raising rates,” Grantham said.
During a media roundtable from Thailand on Saturday, Macklem warned that persistently high energy prices were increasing the risk of broader inflation and that the central bank was prepared to raise rates if necessary.
He said the prevailing message from his peers at the International Monetary Fund meetings in Bangkok was that the global economy has been performing better than expected in the face of ongoing wars in Iran and Ukraine, sweeping trade disruptions and higher borrowing costs from rising bond yields.
But Macklem also said that resilience is increasingly “under strain” as shocks like the Middle East conflict persist and drive up energy prices.
Some of those sources of resilience — like releasing global oil reserves — are being depleted, he said.
“You can only release strategic energy, oil reserves so many times, but that has helped contain this energy price shock,” Macklem said.
---
Brett Bundale, The Canadian Press
This report by The Canadian Press was first published Oct. 19, 2026.
