Softer CPI Bolsters Case for Bank of Canada to Hold Rates in October While Energy Prices Cloud Outlook, Economists Say

11:03 AM EDT, 10/19/2026 (MT Newswires) -- September's softer-than-expected consumer price index reinforces expectations that the Bank of Canada will hold rates steady next week, though mounting energy price pressures remain a key source of uncertainty for the outlook, according to economists after Monday's data. "Today's softer-than-expected release reaffirms our expectation that the Bank of Canada will remain on hold for October's meeting, but we continue to see a rate hike in the cards in the near future, potentially as early as December," wrote KPMG Canada Senior Economist Peter Shannon in a note. CPI inflation edged up to 3.1% annually, driven entirely by higher gasoline prices, although the increase was slightly below economists' expectations, with a consensus for 3.2%. Underlying inflation remained contained, with CPI excluding food and energy steady at 2.1%, while the BoC's preferred core measures, CPI-trim and CPI-median, eased to 1.8% and 1.9%, respectively. Broader inflationary pressures remain limited, with little evidence that higher energy prices are feeding through to other components of the CPI. Excluding gasoline, inflation slowed to 2.2% annually from 2.4% in August, while grocery price growth moderated and the proportion of CPI components rising by more than 3% annually declined slightly. Rent inflation, however, remained persistent at 2.8%. "Today's number supports our view that the Bank of Canada can remain on hold this year," wrote TD Economics Senior Economist Leslie Preston in a note after the CPI release. "There is little evidence higher energy costs are bleeding through to broader price pressures, which remain mild." Canada's central bank is scheduled to hold its next policy meeting on Oct. 28. However, the outlook remains clouded by the recent surge in global oil prices, said economists. Crude supply disruptions and refinery outages have driven up gasoline and fuel oil costs, raising the prospect of a further energy-led increase in headline inflation in October. "The Bank of Canada is still facing an uncomfortable balance," according to RBC Economics Economist Abbey Xu in a note, as the economy remains weak, with employment falling and the jobless rate around 6.5%, while elevated oil prices risk fueling broader inflation. Governor Tiff Macklem acknowledged as much on Saturday, noting that "the risk that inflation broadens and becomes more persistent has gone up" and that the BoC has found it increasingly difficult to look past the direct inflationary impact of rising energy prices. "Even with today's benign core inflation readings, it's possible that a first interest rate hike could come earlier than the January move we previously forecast," wrote Andrew Grantham, senior economist at CIBC Capital Markets, in a Monday note.