Canada’s central bank is running out of excuses. Headline inflation surged in September, according to Statistics Canada’s (StatCan) latest Consumer Price Index (CPI). Rising headline inflation is certainly a concern, but it was dwarfed by what the agency omitted: the Bank of Canada’s (BoC) preferred core inflation metrics. The BoC recently floated the idea of abandoning them when the data failed to align with its messaging. Now with virtually all quantitative measures of inflation in conflict with the central bank’s narrative, it’s unclear what—if anything—is guiding Canadian monetary policy.
Canadian Headline Inflation Surges After Weaning Gas Influence
Source: StatCan.
Canadian headline inflation made a monster of a surge. CPI climbed 0.5 points to 2.4% in September, as gasoline’s temporary drag on headline inflation wears off. CPI ex-gasoline came in at 2.6% in September.
According to the agency, headline CPI was boosted by an acceleration in food (+3.8% y/y), rent (+4.8%), property taxes (+6.0%), and mortgage interest (+3.6%). The latter is an interesting point, as rate cuts have had the exact opposite effect most anticipated—the rate cuts are stoking inflation, boosting bond yields, and thus cheaper fixed-term mortgage rates. Then there’s credit crowding, but that’s a topic for another day.
Bank of Canada Core Inflation Measures Show Inflation Is Soaring
Notably absent from this month’s report was any mention of Core CPI—the BoC’s preferred inflation metrics that may no longer be preferred in the coming months. CPI-common rose 0.2 points to 2.7%, while CPI-median (+3.2%) and CPI-trim (+3.1%) both exceeded the BoC’s 3.0% upper tolerance.
The omission might normally go unnoticed, but it comes right after the BoC’s recent comments. Lacking supporting data for its last rate cut, the BoC questioned the reliability of the data. Instead, it stated it will be looking at underlying inflation, which they noted is a “feeling”—not a statistic.
After the most recent inflation release, hopefully, they realize the gut feeling was just gas and get back to the actual data.
How bad is inflation when they have to abandon their fake, made up numbers designed to minimize inflation in the first place?
Inflation can be caused by two factors, excess demand or devaluation of currency. The former is great, the latter is not. Guess which one is happening here? GLTA, you’re going to need it.
I was grocery shopping and a strip loin steak , just one , was 42 dollars , this was not just 3 % higher than last year . don’t ask the CPI about inflation , ask your wallet , do I buy groceries or fill the tank of my car? what’s for dinner is now a decision based on what can we afford , 2 income families are now a necessity or more like a trap , and national per capita debt has never been higher , and can’t be repaid , not in this lifetime ,everything I am doing now is to cushion the economical impact my kids will face , I feel like I have let them down by being part of this mess. God help us all!
Recently the BOC stated that we don’t have competitive banking. By virtue of how liquidity (printed money) gets into the market from BOC to the banks and then to the public. Now if your a bank it’s been easy money with guaranteed CMHC funding and an overheated housing pyramid. Now we have no “real” GDP to back our currency’s value and homes are deflating while some real loans supporting that market are going bust while some of our GDP goes south incentivized by a US government that allows 100% right off year one. We are in serious trouble and these inflation readings so the Canadian boat taken on water!
And yet Canadians keep voting in a Liberal Government. As a Canadian we deserve what we get. Let’s all bury our heads while we decline. Many don’t see it but look at our dollar. Look at our GDP. Look at our taxes. Meanwhile everyone watching the Blue Jays. Yeah that will save us!
Great blog, Daniel.
I don’t want to make this discussion political, but I noticed that Pierre Poilievre in Question Period said that two of the four inflation measures are above the 3% upper bound of the target range, presumably CPI-median (3.2%) and CPI-trim (3.1%), and all are above the 2% target itself. The other two measures are presumably the official CPI (2.4%) and CPI-common (2.7%). The CPI-common was essentially voted off the island as an inflation measure by the Bank of Canada on October 2, 2022. If it is ignored, then it is two of the three main inflation measures that are above the 3% upper bound of the target range. On the other hand, it was always rather presumptuous of the Bank of Canada to unilaterally drop one of three measures it had reaffirmed to make up its operational guide for the five years 2022-2026 barely nine months into the five-year cycle, so one could understand why Poilievre would insist on holding the federal government to its pledge that CPI-common would remain part of the operational guide until the end of 2026.
In a sense, all of the three core measures are defective because they are all sensitive to changes in mortgage rates. This is not the case for any other preferred measure of core inflation of any central bank in the world. It also wasn’t the case for the Bank of Canada until 2017. Until that year the CPIX was the operational guide, which excluded a number of highly volatile items plus changes in indirect taxes. It had an inflation rate of 2.8% in September 2025. (A slight variant of CPIX, which would also exclude property taxes, would have shown an even lower inflation rate, 2.7%.)
Oddly enough, Rhys Mendes, whose paper “Underlying inflation: Separating the signal from the noise”, announced the defenestration of CPI-common, indicates that the Bank of Canada is well aware of the mortgage interest problem: “When we increase interest rates, we want inflation to come down. But when interest rates go up, inflation in mortgage interest costs also goes up automatically. And because many Canadians have fixed terms on their mortgages, renewal at new rates happens only gradually. So the effect on inflation can be persistent.”
Rhys goes on: “Some of our core measures automatically exclude inflation in mortgage interest costs [CPIX and CPIX8, which is just CPIX without any adjustment for indirect taxes], while others have been designed to filter it out when its movements become extreme.” CPI-trim is one of the second kind of measures. However, “[a]fter we started raising the policy interest rate in 2022, CPI-trim correctly began to filter out mortgage interest costs. But since it’s a relatively large component, its persistent exclusion limited CPI-trim’s scope to exclude other, more temporary, sources of upward pressure on inflation. Because of this, CPI-trim was 2.5% in December 2024, while an alternative version that pre-excluded mortgage interest costs was 2.1%. The alternative measure was far closer to where we thought underlying inflation was at that time.” CPIX was at 1.8% in December 2024, and so presumably also much closer to where the Bank of Canada thought inflation was at the time.
And Rhys concludes: “One question we are asking ourselves is whether we should revise our preferred measures and our alternative measures of core inflation so they all pre-exclude mortgage interest costs. It’s something we’re considering carefully, particularly as we think about how monetary policy and imbalances in the housing market interact.” Why not indeed? If you haven’t done this with all core measures by now, what is keeping you? Shouldn’t you be reporting these already for CPI-common, CPI-median and CPI-trim every month, in the interest of transparency?