Headline CPI inflation for September came in at 2.4% year-on-year (y/y), ahead of expectations for a 2.2% y/y print. September’s reading was up from 1.9% in August.
Gasoline prices again provided a smaller drag to the headline, down 4.1% y/y from -12.7% last month. On a monthly basis, prices rose 1.9%, with refinery disruptions and maintenance in North America cited as factors.
A monthly rise in travel services prices in September, rather than the typical decline, flipped the annual price change to +1.3% y/y from -9.3% y/y in August.
Measures of underlying inflation were a mixed bag, either ticking higher or remaining unchanged in September. The Bank of Canada’s (BoC) CPI-trim measure rose to 3.1% y/y (3.0% in August), while the CPI-median index was unchanged at 3.2% y/y. The CPI excluding food and energy was unchanged at 2.4% y/y and the CPI excluding the eight most volatile components and indirect taxes (CPIX) rose to 2.8% y/y from 2.6% in August. On a three-month annualized, seasonally adjusted basis the CPIX (+2.3%), CPI ex. food and energy (1.6%) and CPI-median (+2.8%) were all unchanged in September, while the CPI-trim rose to 2.6% from 2.4% in August.
Key Implications
Underlying inflation appears to have firmed up in the past two months, but it remains within the Bank of Canada’s target range. One hotter-than-expected month does not a new trend make, but it is worth monitoring whether the strength in price pressures is indicative of ongoing consumer resilience.
The Bank of Canada should still have room to deliver another cut. The economic outlook is fraught with risks, and the elevated unemployment rate reflects an economy with ample slack – something yesterday’s Business Outlook Survey reinforced. Markets seem to agree, pricing the odds for an October cut at 69%, just a smidge lower than the 77% pre-release.
