Statistics Canada announced that Canada’s inflation rate accelerated more than expected in September, casting doubt on whether the Bank of Canada (BoC) will lower interest rates next week. Core inflationary pressures also remained elevated in September. Canadians received some good news yesterday, which offset some of the disappointment in higher-than-expected inflation. A report showed Canada and the US may be preparing to sign a trade deal for certain products this month.

• Canada’s annual inflation rate increased to 2.4% in September from 1.9% in the previous month. This was Canada’s highest annual inflation rate since February 2025 and was above the 2.2% rate expected by economists, according to a Bloomberg survey.
• Gasoline prices fell less in September than in August. Prices for food and household operations both accelerated during the month.
• Two measures of core inflation, median and trim, were 3.2% and 3.1%, respectively, in September. Broad-based price pressures persist.
• After analyzing the report, attention was directed to the BoC’s rate decision next week. Elevated core pressures and higher-than-expected headline inflation could potentially keep the BoC on the sidelines from cutting rates next week.
• There was good news when The Globe and Mail reported that Canada and the US may prepare to sign a trade deal for steel, aluminum and energy later this month. Prime Minister Mark Carney confirmed a deal is possible. This could help these sectors, which were troubled by extensive US tariffs. An agreement for automobiles and softwood lumber does not appear to be imminent.

The BoC must carefully navigate an environment of slowing economic activity and rising inflationary pressures. On the economic front, a trade deal with the US may help boost activity in those sectors that have been hurt by tariffs. A trade deal may also help ease uncertainty, boosting consumer and business confidence.

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