MNI:Gas Leads 3rd Straight Canada CPI Rise, Core Fastest In Yr

Canada's inflation rate quickened for the third straight month and by more than economists predicted in September on an unfavorable comparison to gasoline prices a year earlier while a core inflation measure advanced the most since March of last year, complicating the central bank's decision whether to cut interest rates again next week to counter soft hiring and output.

Consumer prices rose 2.4% in September versus August's 1.9% and faster than an MNI economist consensus for 2.25%. Inflation has climbed from 1.7% three months ago even with a downward pull from the government's elimination of a retail carbon tax. 

While gasoline prices were a main source of upward pressure excluding that item inflation also quickened, to 2.6% from 2.4% in August, Statistics Canada said Tuesday.

The Bank of Canada's preferred core measures remained elevated and around the top of its 1% to 3% target band. The median core index remained at 3.2%, trim rose a notch to 3.1%, and the common measure reached the highest since March 2024 at 2.7% from the prior 2.5%. Bank officials are looking at a wider range of inflation measures because of the risk of false signals from core indexes and at the last decision said underlying inflation appears to be running around a 2.5% pace.

Whatever the measure of trend inflation, prices accelerated in five of eight major categories tracked by the federal statistics agency, dominated by longstanding pressures in housing and food. Rents climbed 4.8%, property taxes by 6%, mortgage interest costs by 3.6% and restaurant meals by 3.3%. Car prices also gained 3.9%, an area of consumer concern during the U.S. trade war. 

Economists are leaning towards the view Governor Tiff Macklem will cut the 2.5% policy rate another quarter point at the Oct. 29 decision, focusing more on economic weakness such as the highest jobless rate in a decade excluding the pandemic. Officials said at the last meeting the balance of risks shifted away from hot inflation. Prime Minister Mark Carney dropped some retaliatory tariffs in September and President Donald Trump told Carney he wants to make a deal on trade and tariffs that Canada will be happy with. 

Trade war or not, cutting borrowing costs again when it's unclear why core prices are sticky could put the Bank's reputation at risk again if tariffs create another burst of inflation as was seen after the Covid rebound. Carney's budget Nov. 4 is also expected to set a record deficit outside the pandemic, which could also add further pressure.