Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Inflation accelerated to 2.4% in September, mostly due to a base effect and higher food prices. Moreover, the Bank of Canada’s preferred measures of core inflation edged higher to 3.15% on average. The BoC’s preferred measures of inflation have been at or above 3%, the upper band of the inflation target, for the past six months.
The breadth of inflationary pressures was relatively stable in September. The share of components of CPI rising by more than 5% was unchanged at 19%, while the share of components increasing by more than 3% eased to 37% from 38%. We note that the share of components increasing by more than 3% has been well above historical norms for most of 2025 (see Fig. 1) and is higher than during periods when inflation is at target, suggesting some stickiness and broad inflationary pressures.
The recent trend in CPI’s monthly changes suggests that the momentum in inflationary pressures increased slightly in September, and the 3-month annualized changes of half of the main CPI components are above 3% (see Fig. 2), with the 3-month annualized change in headline CPI is at +3.0%.
The momentum of BoC’s core measures was rose slightly to 2.6% in September (see Fig 2). The core inflation momentum below 3% suggests that the stickiness in core measures and price pressures are consistent with the BoC’s inflation target. Similarly, we note that the momentum in alternative measure of core are also below 3%, with CPI excluding the 8 most volatile components and indirect tax at 2.3% and CPI excluding food and energy at 1.6%.
Overall, the report suggests that headline inflation remains well within the inflation target. While core inflation remains marginally above the upper end of the inflation target, recent dynamics suggest some easing in the coming months. As such, we expect the BoC’s measures of core inflation to be below 3% in November. Similarly, the dynamic in alternative core measure also suggests little price concerns. This should ease some of the BoC’s concerns regarding the stickiness of inflation.
Nevertheless, the BoC has put more emphasis on current inflation than on the amount of slack in the economy so far this year. Signs that inflation may be slightly stickier than expected could cause concern for the BoC and somewhat reduce the likelihood of a cut at the October meeting, especially when look at in conjunction with the rebound in employment and continued resilience in consumer spending.
However, with growth expected to be subdued in the coming month, the amount of slack in the economy is expected to remain considerable. As such, we continue to expect the BoC to cut its policy rate by 25bp at next week’s meeting. If the BoC choose to stay on hold, they it would only to delay the reduction in the policy rate.
In Alberta, inflation accelerated to 1.9% in September. Higher food prices (+3.7% y-o-y) pushed inflation higher and continued to be the main source of inflation, while energy costs were no longer a drag. Inflation excluding food and energy (a core inflation measure) was unchanged at 2.6% and was only marginally above the national measure.
The Consumer Price Index (CPI) increased 0.1% m-o-m non-seasonally-adjusted in September and the inflation rate accelerated to 2.4%. A growth in food, shelter and recreational costs was the main sources of price increases in September, while lower transportation costs were the main source of price decreases for the month.
On a year-on-year basis, all of the major CPI components accelerated in September.
Food price inflation rose to 3.8% y-o-y, adding 0.6pp to inflation. Most of the acceleration is due to higher global prices for meat, take-out food and a surge in prices for fresh vegetables and sugar and confectionary.
Transportation costs were a higher drag on inflation, with prices increasing 1.5% y-o-y in September compared to -0.5% in August. Transportation costs reduced inflation by 0.3 percentage points (pp) in September. The increase was mainly due to vehicle purchased and private transportation.
Shelter cost inflation remained at 2.6%, the lowest since March 2021, contributing 0.8pp to headline inflation. This was mainly due to slower rent increases (contributing 0.4pp) and continues deceleration in mortgage interest costs (+3.56% y-o-y), contributing +0.3pp.
Recreation, education and reading rose 1.6% from 0.5% y-o-y in August. It increased inflation by 0.2pp and most of the increase is from tuition fees, home entertainment services.
Household operations, furnishings and equipment rose to 2.4% in September. It increased inflation by 0.3pp and most of the increase is from household supplies for kitchen, gardening and electronic equipment.
In September, goods price inflation rose to +1.6% y-o-y and service price inflation rose to 3.0% y-o-y. Energy prices were 2.6% lower compared to the same month last year, as the removal of the Carbon Tax in April means lower energy price levels. Excluding food and energy, prices declined 0.1% m-o-m in September and remained at 2.4% compared to the same month last year. The Bank of Canada’s old measure of core inflation, CPI excluding the 8 most volatile components and indirect taxes, increased to 2.8% in September.
Looking at the BoC’s core measures of inflation, they were roughly unchanged in September and remained at the upper end of the BoC’s inflation target. CPI-Trim rose to 3.1%, while CPI-Median was unchanged 3.2%. As a result, the average of the two measures eased marginally to 3.15% from 3.10%, above 3% target.
By provinces, headline inflation was the highest in Quebec (3.3%), Manitoba (2.9%), Nova Scotia (2.7%), Saskatchewan (2.6%), while it was the lowest in PEI (1.7%), Alberta (1.9%), BC (1.9%), Ontario (2.0%) and Newfoundland (2.0%).
Core inflation, or CPI excluding food and energy, is highest in Quebec (3.3%), Manitoba (3.1%), Saskatchewan (3.0%), and Nova Scotia (2.9%). It was the lowest in PEI (1.4%), BC, (1.8%), Newfoundland (+1.9%), and Ontario (+2.2%).
In Alberta, prices eased 0.1% m-o-m and inflation accelerated 1.9% in September. Five out of eight CPI components accelerated on the month. Food prices inflation rose to 3.7% y-o-y from 3.0% y-o-y and was the may source of inflation, contributing 0.6pp to inflation.
Shelter costs were unchanged at 1.7% y-o-y and remained one the main sources of inflation, contributing 0.5pp. However, there were some divergences in the details, with a deceleration in owned accommodation cost (+2.7% y-o-y) and an acceleration in rented accommodation costs (+3.7% y-o-y), while utilities remain a drag on shelter cost (-7.1% y-o-y).
Transportation costs were no longer a drag on inflation, increasing 1.4% y-o-y in September, mainly due to a base effect in gasoline prices. The component contributed 0.2 percentage points to inflation.
Household operations, furnishing and equipment continued to accelerate and reached 3.0% y-o-y in September and contributed 0.4 percentage points to inflation.
Goods price inflation was 0.8% y-o-y in September after -0.1% y-o-y in August. Services price inflation inched higher to 2.9% y-o-y from 2.8% y-o-y in July. Inflation excluding food and energy was unchanged at 2.6%, only marginally above the national measure. Energy costs remained a drag at -9.8% y-o-y compared to -14.9% y-o-y in August, mainly due to the removal of the carbon tax.
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Independent Opinion
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