The August Consumer Price Index (CPI) report breached the Bank of Canada (BoC) upper bound. Statistics Canada (StatCan) data shows CPI accelerated further in September. A regional breakdown reveals that only two provinces are below the national average. Headline growth is well above the BoC’s target rate, but some provinces have more than doubled that rate.
Canadian Inflation Accelerates, Already Past BoC Upper Bound
Canadian CPI annual growth.
Source: StatCan.
Annual growth of CPI accelerated to 3.1% in September, up from 3.0% in August. The outsized impact of soaring gas prices continues, with CPI ex-gasoline at just 2.2% over the same period. The agency further notes that only 3 of 8 major components saw prices accelerate too.
The headline data makes it easy to conclude this is only an energy story. However, a regional breakdown of CPI makes it clear that basket distortions are in play. Only two provinces have seen a rate lower than the national average.
Atlantic Provinces Over 2x BoC Target, Only 2 Provinces Below Average
Source: StatCan.
Despite being above the Bank of Canada (BoC) upper bound of 3.0%, CPI may be skewed by its modelling. A quick look at the provincial breakdowns, and we see Ontario (+2.5%) is the only province below the threshold. Add BC (+3.0%) to the mix, and we get the only two provinces lower than the national average. The rest of Canada isn’t quite this lucky—especially out east.
CPI’s highest growth is almost exclusively concentrated in Atlantic Canada. PEI’s annual growth of 5.7%—approaching triple the BoC’s target of 2%—is the highest in the country. Not far behind are Nova Scotia (+5.6%), New Brunswick (+5.0%), and Newfoundland and Labrador (+4.7%). The Prairies aren’t much better off either—Manitoba (+4.4%), Alberta (+3.6%), and Saskatchewan (+3.3%) are above the national average too.
It’s not just gas, either. CPI ex-gasoline remained elevated in Nova Scotia (+4.4%), PEI (+3.9%), and New Brunswick (+3.4%). The agency separately notes “… rent prices rose the fastest in Atlantic Canada,” which can help explain some of the distortion.
Energy and Shelter Are Among The Biggest Drivers of CPI
The biggest driver of annual growth remains energy, with 19% annual growth. The sector is driven by a 27.8% surge in gas, along with a 57.8% jump in fuel oil. Considering energy is an input cost for everything, its surprising growth isn’t broad.
Shelter accelerated 1.8%, driven by home/mortgage insurance (+4.9%) and rent (+2.8%). The sector was moderated by falling replacement costs (-1.9%), tied to the cost of building new homes. It was dragged further by mortgage interest (-0.2%), which is likely to be news to brokers considering yields.
In short, Canada’s headline inflation is running hot—and the national average is weak in contrast to what most households are experiencing.
Despite all the monkeying around with the economy, the CPI is still rising, and frankly raising rates wont affect that much. So we still need to see some declines in prices of things not tied to commodities.
keep in mind this is CPI with the new methodology that BNS said would “chronically underreport” the growth.
Raising rates would help with the currency issue. The more debt issued in Canadian dollars, the more interest rates need to raise to attract the float into CAD.
Honestly, reading this just confirmed my worst fears about renting in Nova Scotia. The article says rent is part of the distortion but we actually live in that reality right now with utilities and gas skyrocketing at the same time. It’s frustrating seeing Ontario listed as an outlier while everyone else is stuck paying double for basic living costs.
The gas numbers are insane if you think about it because we’re not driving as much now but heating oil is completely broken in my area. It feels like the national average doesn’t reflect what people are actually experiencing day to day. I’m pretty sure PEI having nearly triple inflation means their cost of living has basically shifted up a rung on the ladder.
I remember when inflation was barely a topic until this summer but it’s wild to see how fast prices have moved since my retirement planning started. The shelter section noting replacement costs dropping while interest rates stay high is a tricky one for fixed income folks like us trying to buy that second home.
It’s weird seeing how much the east coast differs from the prairies but both regions are clearly struggling compared to BC or Ontario. If BoC keeps hitting that upper bound I wonder if they’ll eventually have to acknowledge these regional differences instead of smoothing it out with a single national number.
Excellent analysis, Daniel.
With the CPI update, one can now say that average hourly earnings and average weekly earnings for all Canadian workers shrunk by 0.7% over the year in September, while AHE for permanent employees fell by 0.3%. This by itself would indicate that we don’t have an overheating economy with upward wage pressures feeding inflation, and if anything we need lower interest rates to feed demand. But this ignores the fact that inflation is clearly above our central bank’s three percent upper bound, and headed higher, which is surely the indication that a higher bank rate is needed.
It is the second month in a row that it has been above the Bank of Canada’s 3% upper bound on inflation and the first month that it has been sufficiently higher that it shows up when one rounds the inflation rate to a single decimal place. The average annualized inflation rate under Carney has been 2.8% if one looks at the CPI, 2.9% if one looks at the CPI excluding mortgage interest, both records for a Prime Minister operating under the Bank of Canada’s inflation targeting regime. He hasn’t yet taken the average annualized inflation rate as PM above 3.0% for both measures, but he has an excellent chance of getting there. No=one has ever accused Carney of lacking ambition.
An interview with Robert Kavcic (Serbo-Croatian spelling Kavčić), an economist with BMO Capital Markets, conducted by Bloomberg anchor Lindsay Biscaia took a rather sanguine view of the latest update. Kavcic jus says that it came in below expectations, but not by how much. BMO Capital Markets itself had forecast a 3.2% increase, and other private sectors had made the same call. The actual CPI inflation rate was 3.09%, slightly below 3.10%, but then again if it had been 3.16% it would have been consistent with the 3.2% forecast. In any case, this was the kind of a reading that would have the Governor of the Bank of Canada writing a letter of explanation to the Minister of Finance if we did things here as they are done in Britain, but unfortunately, on this score at least, there is no such practice here.
Kavcic noted that all of the core measures of inflation for September are low, but this isn’t really true. In December 2026, the Bank of Canada signed off on a renewal of the inflation-control agreement that continued to designate three non-exclusionary core measures as the operational guide for our central bank. Rather scandalously, CPI-common got plutoed early in 2027, leaving only CPI-median and CPI-trim in the operational guide. These came in at 1.9% and 1.8% respectively, both below the 2.0% target rate, and CPI-trim reaffirms its status as best-in-the-class and likely to be the sole series in the operational guide when a new renewal agreement is inked later in the fall.
However, CPI-common had an inflation rate of 2.4% and CPIW one of 2.5%. Even CPIX, the previous operational guide and the only one to exclude mortgage interest cost, was at 2.2%, above the target rate. By the way, the CPIW update, which for some reason normally appears a day after the other CPI series, this month came two days afterwards. Perhaps this is one of the things we have to look forward to in Carney’s New . . . World . . . Order.
As you noted Daniel, inflation was much above the national average in all of the Atlantic provinces. Three of these four continued to show no change in their replacement cost of depreciation components, and so showed zero inflation rates when they quite likely had negative growth rates. Nova Scotia, which did show weak positive growth in September 2026, also has its problems. The -0.3% monthly growth in replacement cost for September was the first change in its index since April. If there had been good data for the Atlantic Region based on the new housing price survey their very high inflation rates would likely be somewhat reduced. One shouldn’t exaggerate, since the proposed oil pipeline to the Martimes never got built, and they are at the mercy of foreign suppliers.
Unfortunately, StatCan no longer publishes separate indexes for the four Atlantic Provinces so it is not possible to compare the replacement cost indexes for the provinces with the house-only indexes from which they are derived. StatCan routinely seems to issue a “use with caution” warning regarding the land-only indexes, but is hard to see why they would not provide the same warning for the “house-only” indexes, since the actual house prices that the survey collects are only split in two parts, at the discretion of the respondent builder. If the respondent base dries up in this region it is difficult to keep the provincial replacement cost indexes going, it is surely time to consider replacing the NHPI as the source for these series with price indexes for existing dwellings, on a temporary or a permanent basis. The UK Retail Prices Index also has a home depreciation component, and it is based entirely on existing home price indexes.
Rent inflation was unchanged at 2.8%, but still the second largest contributor to the inflation rise. It may be true as Kravcic said that new rental lease prices show falling prices, but it seems unlikely this will continue given the Carney government now is primed to reopen the immigration spiggot. Air transportation showed a 19.4% increase, reflecting in part higher oil prices. Looking forward the plans of Carney to privatize major Canadian airports seem certain to substantially raise the cost of air fares to Canadians.
Kavcic didn’t seem to think that this inflation report justified an increase in the bank rate on October 28, and that was also the view of the C.D. Howe Institute Monetary Policy Council today, with only the Scotiabank representative voting for a rate hike to 2.75%. On the other hand, Shaun Richards, the English economist who runs the Notayesmanseconomics blog, favours a rate hike. He points to Monday’s Business Outlook Survey from the Bank of Canada where respondents said that they intended to pass on cost pressures in their prices as they emerge. So our central bank’s own data shows inflation is likely to go higher. Isn’t it the bank’s job to stop that from happening when the inflation rate is already above the 3% upper bound?