OTTAWA — Inflation in Canada increased to 2.4% in September, according to Statistics Canada. This rise is attributed primarily to changes in gas prices and ongoing pressures in grocery costs. The annual inflation rate is up from 1.9% in August, marking a half-percentage point increase and exceeding economists' expectations.

Gasoline prices have seen a year-over-year decline, mainly due to the removal of the consumer carbon price. However, there was a slight monthly increase in gas prices. The agency noted that the year-over-year decrease in gas prices was less pronounced in September compared to August, contributing to the overall inflation figure.

Grocery prices continue to exert pressure on consumers. Fresh vegetable prices rose by 1.9% annually in September, reversing a decline from August. Additionally, the cost of sugar and confectionery surged by 9.2%, up from 5.8% the previous month. Statistics Canada indicated that grocery prices have generally trended upward since reaching a low in April 2024, with limited supplies of beef and coffee contributing to the higher costs.

Travel tours also experienced a rare month-over-month price increase in September, driven by higher hotel costs associated with major events in Europe and parts of the United States. National rent prices rose to 4.8% year-over-year in September, up from 4.5% in August. Although rent price hikes have generally slowed over the past year, some monthly fluctuations remain.

In contrast, smaller annual increases were observed in clothing and footwear prices, which helped temper the overall inflation figures. The September inflation report is significant as it will be the last data set reviewed by the Bank of Canada before its next interest rate decision on October 29.

The central bank had previously lowered its benchmark interest rate by a quarter point to 2.5% in September. Core inflation measures, which aim to exclude volatile items, remained above 3% in September, indicating persistent price pressures.

CIBC senior economist Andrew Grantham noted that broader core inflation measures suggest underlying price pressures are consistent with August's readings. He indicated that this could mean less inflationary concern than the headline figure implies, potentially setting the stage for another quarter-point rate cut.

Stephen Brown, deputy chief North America economist at Capital Economics, commented that the latest inflation data, combined with a stronger-than-expected jobs report for September, may reduce expectations for a rate cut at the end of the month. However, he still leans toward anticipating another rate cut, following comments from Bank of Canada Governor Tiff Macklem regarding concerns about a soft jobs market last week.