After increasing gas prices month-to-month in September, many economists feared that this would push inflation higher. In gas, gasoline prices are on the rise, but after a dramatic decline over the same stretch last year. Such a sharp increase makes the future of inflation in Canada uncertain as it approaches the Bank of Canada’s target.
In August inflation—across all products and services—was just 1.9 percent on an annual basis, but analysts predict that number will jump sharply. Current estimate Stephen Brown predicts an inflation rate of 2.4 percent per year. Benjamin Reitzes thinks it will climb to 2.2 percent. The central bank has a statutory, legally mandated, inflation target of two percent per year. Those next economic reports will have a big say over how far the Fed pushes their new monetary policy consensus.
While the increased cost of gasoline is notable, trends in inflation overall paint a clearer picture. Experts suggest that examining the breadth of inflation—how widespread price increases are across various sectors—may offer a clearer understanding of whether inflation is under control.
With the unemployment rate still at 7.1 percent, the economic picture is only made more complicated by this factor. Reitzes noted that “there is ongoing uncertainty. That’s going to weigh on investment intentions, that’s going to weigh on hiring intentions. Things aren’t as bad as they were last quarter.”
The relatively weak Canadian dollar is the immediate cause of skyrocketing food inflation right now. This pressure should start to relax considerably in the next few months. The loonie continued to strengthen through the first half of 2025, which should further reduce inflationary pressure on imports.
In September, the Bank of Canada took a big step in that direction. It lowered its policy rate by 25 basis points, to 2.5 percent. This decision is a continuation of the Fed’s attempts to moderate rapid economic growth and ensure that inflation remains in check.
Fortunately for Americans, Ottawa recently lifted its counter-tariffs on U.S. imported products at the start of this month. The impacts of this decision might have artificially moderated inflation readings for that month. This policy change is expected to have a strong effect on the annual price comparison, raising it considerably as a result of the base-year effect.
The September inflation report will be the last major economic release before the September 6th Bank of Canada interest rate decision. Keep an eye out, as this decision is due October 29. Although duplicitous in nature, analysts are hard at work sussing out positive economic indicators. They’re laser-focused on the speed at which price increases trickle down to consumer prices, and whether years-old tariffs are still affecting pricing decisions.
“It’s a question of how quickly those price declines fed through and how much the initial tariffs were actually passed along in the first place.” – Benjamin Reitzes
