September’s CPI pop pins the Bank of Canada to small, slow cuts. Grocery inflation, not gas, is steering the wheel. Statistics Canada reported headline CPI at 2.4 per cent in September and groceries up 4.0 per cent, with gasoline’s drag fading, on October 21, 2025. Consumer Price Index, September 2025.
Trace The Price Drivers
The mix matters more than the print. Gasoline fell 4.1 per cent year over year, far less than August’s 12.7 per cent, so base effects lifted the headline. Groceries did the real work, driven by fresh vegetables flipping positive and sugar and confectionery accelerating. In its release, Statistics Canada writes, “Consumers paid 4.0% more year over year for food purchased from stores in September,” a clean confirmation of the driver.
That pins blame on supply and weather, not demand the Bank can throttle. Rents rose 4.8 per cent, with Quebec up 9.6 per cent, keeping shelter sticky and broad. Excluding gasoline, CPI ran 2.6 per cent, so the underlying pace looks firmer than the headline implies. The Canadian Press also flagged surprise at the food print, with one major bank noting the jump despite lower counter‑tariffs, highlighting supply tightness in beef and coffee. Food inflation up despite end to counter‑tariffs.
Set The Cut Corridor
Policy is boxed by what the Bank can move. Goods facing tariffs just got some relief, and the Bank itself noted that Ottawa’s removal of most retaliatory tariffs reduces price pressure on those items. The Bank cut the policy rate to 2.5 per cent on September 17 and set the next decision for October 29, keeping optionality. Bank of Canada lowers policy rate to 2.5%. Markets now price high odds of another 25 basis points, taking the rate to 2.25 per cent, but not a bigger swing.
That view leans on the same CPI mix, where shelter and food limit disinflation speed, and on the Bank’s own description of underlying inflation near the mid‑2s. The Bank put its stance plainly, “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties,” which reads as permission for a small step, then wait. If CPI ex‑gas cools back toward 2 per cent and rents slow, that switch flips toward a wider corridor. If groceries stay near 4 per cent into November, the corridor narrows to “cut then pause.” Futures and desk chatter echo that balance after today’s data. Canada’s inflation rises to 2.4%.
Two things enforce the cap on easing. First, the Bank cannot fix weather or cattle supply, so grocery disinflation must arrive through time and trade, not rates. Second, rent momentum is a policy lag story, so today’s shelter impulse fades only as leases turn. Cuts continue, just not fast enough.
