Canada’s inflation rate climbed back to 2.4% in September 2025, surprising economists and forcing the Bank of Canada (BoC) to reassess how quickly it can ease rates. From grocery prices to mortgage costs, Canadians are once again feeling the squeeze—while markets brace for the next move from policymakers in Ottawa.
🔑 Key Highlights
- Inflation ticks up to 2.4% — the first major acceleration since mid-2024.
- Food prices lead the rise, with vegetables and beef showing the steepest gains.
- Shelter and services costs remain sticky, signalling deeper inflation pressures.
- GDP growth slows to 1.2%, highlighting a delicate balance between growth and price stability.
- The Canadian dollar edges higher as traders bet the BoC may pause further rate cuts.
Inflation’s Comeback: A Reality Check for the BoC
After months of gradual cooling, inflation has regained momentum. Statistics Canada’s latest Consumer Price Index (CPI) shows broad-based price increases—especially in food, rent, and services—indicating that inflationary pressures are far from gone.
The BoC’s interest rate, now at 3.75%, was expected to continue trending lower through 2026. But September’s data challenges that outlook. The central bank must now decide whether to pause its rate-cut cycle or risk reigniting inflation by easing too quickly.
“Canada’s inflation story isn’t over,” said a senior market strategist. “This data reminds everyone that inflation can resurface even after a year of tightening.”
Grocery Prices: Canada’s Persistent Pain Point
Grocery costs continue to climb faster than overall inflation—up 3.8% year-over-year. Canadians are paying noticeably more for essentials like fresh vegetables (up 15%) and frozen beef, driven by:
- Unfavourable growing conditions and lower crop yields.
- Higher labour and transportation costs in the food supply chain.
- A weaker Canadian dollar raising import prices.
These increases hit households hardest because groceries are non-discretionary expenses—Canadians can’t simply “cut back” on eating. This squeezes budgets and limits spending elsewhere, creating ripple effects throughout the economy.
Shelter, Energy, and the Everyday Cost of Living
Housing costs remain a major driver of inflation. Rent and mortgage interest expenses rose 4.2% year-over-year, a reflection of tight rental markets and elevated borrowing costs.
Energy prices, meanwhile, remain volatile. Gasoline prices rebounded modestly this fall, with crude oil trading between $75–$85 USD per barrel through much of 2025. However, regional differences remain stark: natural gas prices rose sharply in Atlantic Canada but stayed stable in B.C. thanks to local supply.
When gas is excluded, inflation still sits at 2.6%, showing that underlying pressures remain above the BoC’s 2% target.
Canada’s Growth Outlook: Slowing Momentum Ahead
Canada’s economy expanded just 1.2% in Q3 2025, below expectations and well short of pre-pandemic averages. High household debt and soft business investment are holding back growth, even as the BoC has eased policy this year.
The Bank faces a classic dilemma: keep rates high to control inflation—or risk a deeper slowdown by cutting too soon. For now, the governing council appears to be choosing caution, emphasizing that decisions will remain “data-dependent.”
The central bank will closely watch:
- Core inflation measures (CPI-Trim, CPI-Median).
- Labour market trends and wage growth.
- Household spending and debt service ratios.
- Global policy shifts—especially from the U.S. Federal Reserve.
The Loonie and Global Markets
The Canadian dollar briefly strengthened following the inflation release, moving from 1.38 to 1.36 CAD per USD as traders recalibrated expectations for BoC policy.
Currency markets are now pricing in a slower pace of rate cuts in Canada compared to earlier forecasts. The loonie’s direction will continue to hinge on three forces:
- Oil prices – Canada’s resource-heavy economy keeps the dollar tied to energy markets.
- Rate differentials – Diverging policies between the BoC and the U.S. Fed can shift capital flows.
- Risk sentiment – Global market optimism typically benefits the loonie as investors move toward growth-linked assets.
Regional Variations: Inflation Across Canada
Inflation is not hitting all provinces equally.
- Alberta: 2.7% inflation, driven by transportation and energy.
- Nova Scotia: above 3%, due to rising shelter and utility costs.
- British Columbia: below national average at 2.2%, helped by stable energy prices.
These differences show why one national policy can’t perfectly address every regional challenge. While the BoC sets rates for the entire country, local housing markets, labour costs, and energy access create diverse realities on the ground.
Fiscal Policy: Ottawa’s Balancing Act
The 2025–26 federal budget increased spending on housing and affordability measures. While this helps households, it also fuels demand, potentially working against the BoC’s inflation-control goals.
Economists continue to debate whether fiscal and monetary policy are working in sync or in tension. As affordability programs expand, the risk of renewed inflation pressure grows—especially if the economy doesn’t cool further.
What’s Next for Inflation and Interest Rates?
Markets expect inflation to hover between 2.3% and 2.5% through the end of the year. Persistent wage growth, global supply shocks, or a weaker dollar could push prices higher again.
Conversely, if GDP growth remains weak and unemployment ticks up, inflation could cool faster than expected—allowing the BoC to cut rates again in 2026.
For now, most economists expect a pause in further rate cuts, with policymakers waiting for clearer evidence that inflation is trending back toward 2%.
What This Means for Canadian Homeowners and Investors
For homeowners, inflation and rate uncertainty make mortgage planning more complex. Borrowers renewing in 2026 may see modest relief, but variable-rate borrowers remain vulnerable to market swings.
For investors, the message is mixed:
- Bond yields could stay elevated longer if inflation proves sticky.
- Equities may benefit from stable energy prices and resilient consumer spending.
- The Canadian dollar could find short-term support from reduced rate-cut expectations.
At Lendworth, we view this environment as one where capital discipline and diversified lending strategies matter more than ever. Inflation may be cooling—but the path back to stability is far from straight.
The Bottom Line
Canada’s inflation comeback underscores how fragile price stability can be. The mix of stubborn food inflation, elevated shelter costs, and slower growth leaves the Bank of Canada in a tough spot—managing risk on both sides of the economic equation.
For everyday Canadians, this means living costs will remain higher for longer. For investors, it means volatility—but also opportunity.
At Lendworth, we help clients navigate these turning points with insights grounded in data, discipline, and experience. Whether you’re an investor, borrower, or industry partner, understanding where inflation is heading is key to positioning for what comes next.