Inflation and the Consumer Price Index in Canada

Canadian CPI: July update

Canada's Consumer Price Index (CPI) rose 3.1% year over year in September, accelerating from 3.0% in August. The increase was driven almost entirely by higher energy costs. Gasoline prices surged 27.8% year over year, as the Iran war and its disruptions to key shipping routes put upward pressure on fuel prices. Excluding gasoline, inflation rose 2.2% year over year, slightly lower than August's non-gas reading of 2.4%.

Core inflation measures — the key metrics monitored by the Bank of Canada when making interest rate decisions – edged down in September, with CPI Median and CPI Trim coming in at 1.9% and 1.8%, respectively. These measures are closely watched by the Bank of Canada because they help filter out more volatile price movements and provide a clearer picture of broader inflation trends.

What is inflation?

Inflation refers to how prices rise or fall for common goods and services over time, and how that affects consumers’ purchasing power. This is measured using a “basket of goods and services”, and tracking how their prices change over the course of the year.

Statistics Canada updates this basket annually, tweaking the weights of various components to accurately reflect consumer behaviour. This basket of goods is then used to set the Consumer Price Index, which provides a measurement for how inflation is rising or falling. This is also referred to as the “headline” inflation rate. Meanwhile, the “core” measures of inflation provide more nuanced looks into how prices are evolving, with the extremes stripped out.

When the headline inflation rate rises, this means the prices of consumer goods and services are also increasing, while a dropping inflation rate indicates deflation is occurring, meaning prices are falling, and consumers are seeing greater purchasing power.

What is the Consumer Price Index?

• The Consumer Price Index (CPI) is an index that tracks how much the average Canadian household spends on a variety of goods and services, and how that changes over time, which is referred to as price inflation.
• The Consumer Price Index is based on a 700-item basket of goods and services, divided into eight components: Food; Shelter; Household operations, furnishings and equipment; Clothing and footwear; Transportation; Health and personal care; Recreation, education and reading, and Alcoholic beverages, tobacco products and recreational cannabis.

How does inflation impact the cost of transportation? 

The transportation component of the CPI basket accounts for the price of vehicles, public transportation, parking fees, gas and auto insurance. Inflation on car insurance premiums has seen a steady price increase year-over-year, as shown in the chart below. The most recent data indicate that July 2026 saw a 6.1% increase in passenger vehicle premiums from July 2025. 

As with all Canadian insurance products, insurers take into consideration market changes when calculating premiums. The CPI basket reveals that inflation has affected the price of new and used cars, auto parts, and vehicle repair services, making claims more expensive for the auto insurance industry. Other market factors, like the cost of auto theft, also contribute to rising claim costs. All of these factors together lead to inflated claim prices, which drive up Canadian auto insurance rates, further increasing the cost of car ownership for drivers. 

Gas prices are also a major contributor to the CPI basket and one of the most volatile; energy prices can change rapidly based on external factors such as changes in the world’s crude prices, supply and demand imbalances, and the production capacity of refineries. Due to this, energy prices can spike or decline dramatically over the course of a month and can cause large year-over-year base effects in the headline inflation number. This is why core inflation measures, such as the CPI Trim and CPI Median, are helpful, as they strip out some of these extreme price swings to reflect consumer spending trends better. The most recent data show that gasoline prices are up 25.7% in July 2026 compared with the previous year. However, month-to-month, gas prices are up just 3.6% from June to July 2026. The rising year-over-year costs are largely due to the ongoing conflict in the Middle East, which has significantly driven up fuel prices in Canada. At the end of April, the federal government temporarily suspended the federal fuel excise tax to ease rising costs. While June saw the first decline in gasoline prices since the suspension, prices jumped again in July. 

How does inflation impact shelter costs and mortgage interest rates? 

Shelter inflation is the largest contributor to the CPI basket. This reflects the high cost of housing in Canada, elevated mortgage rates, steep rent costs and home insurance rates. Shelter inflation in Canada is made up of:

• Mortgage interest costs (MIC): This reflects the price-induced changes in the amount of mortgage interest owed by homeowners. Changes to home prices, mortgage balances, and interest rates all play a role here. Overall, MIC has fallen sharply from its peak of 30% in 2023.
• Home replacement costs: This refers to the amount of money it would take to rebuild or repair your home to its original condition at current market prices, not including the land it sits on. HRC saw a 2.1% decrease year-over-year in July, indicating a drop in materials and labor costs.
  
• Rent costs: This index measures how the cost of rent is evolving at a national level. Statistics Canada also provides provincial breakdowns on rent inflation costs. In July, Canadians paid 2.5% more on rent than in the previous year.
• Homeowners' home and mortgage insurance costs: This refers to the total insurance-related expenses homeowners pay, including the average premium for home insurance and mortgage insurance fees. Rising costs mean insurers will pay out more in claims and, as a result, will offset these incurred costs by raising the price homeowners pay for insurance. The same applies to the cost of home replacement; as inflation takes its toll, insurance providers will pass the added costs on to policyholders.

How inflation impacts the Bank of Canada

Inflation greatly impacts the cost of borrowing in Canada as it is a key measure considered when the Bank of Canada determines the level of its benchmark interest rate.

The Bank has a mandate to keep the pace of inflation at a 2% target – this is a range where price growth is stable and sustainable, without putting pressure on the economy and consumers. In order to maintain this 2% range, the Bank of Canada (BoC) will sometimes increase or decrease its benchmark Overnight Lending Rate (OLR), which Canadian lenders use to set their Prime rate and, by extension, their variable-rate borrowing products.

When inflation is running too high, the central bank increases its OLR, to make it tougher to borrow and discourage spending. When the economy is at risk of being too soft, the BoC will cut its OLR to keep the flow of credit going, thereby stimulating the economy.

Inflation accelerated to 3.1% in September 2026, up from 3.0% in August, moving further above the Bank of Canada’s 2% target. The Bank responded by raising its overnight rate in October.

October 28, 2026: Bank of Canada announcement highlights

On October 28, 2026, the Bank of Canada raised its overnight interest rate to 2.50% from 2.25%, the Bank's first rate hike in over three years. The decision was widely expected after inflation rose to 3.1% in September and the Bank signalled it was increasing its inflation expectations.

• Inflation has become the Bank's primary concern. Headline CPI sits above 3% and is expected to reach 3.5% before the end of 2026. The Bank anticipates that higher energy prices will bleed into the wider economy and cause inflation to spread.
• Looking ahead, the Bank's next move will depend on how these pressures evolve. Persistent or rising inflation could lead to more interest rate increases. Variable mortgage rates have already increased and could rise further.
• Fixed mortgage rates will continue to be driven primarily by Government of Canada bond yields, which are influenced by investor sentiment around inflation. 

Inflation & your mortgage - October 2026 update

Canada's Consumer Price Index (CPI) was 3.1% in September, slightly higher than August's reading of 3.0%. That is still above the Bank of Canada's 2% target. Without gasoline, inflation rose to 2.2%. Gas prices pushed inflation up the most, rising 27.8% from a year ago.

This matters for anyone with a mortgage, because the latest numbers made higher variable mortgage rates more likely. The Bank of Canada raised its overnight rate by 25 basis points in October, an increase that showed up in variable mortgage rates.

If inflation rises further — the Bank estimated that it would hit 3.5% by the end of 2026 — further rate hikes could be coming.

How inflation impacts interest rates and borrowing 

The rate of inflation has a direct impact on the value of some investments, such as stocks; when inflation increases, it whittles the rate of return on those investments. This can have an impact on investors, who are more likely to sell off their investments if they anticipate inflation will increase in the future.

This anxiety also affects the bond market. Investors sell off their bonds when they expect inflation can devalue them in the future. Increased bond sales drive yields up, which increases the overall cost of borrowing. Products such as variable-rate mortgages, personal loans and auto loans can all be affected.

One type of investment that benefits from higher inflation is Guaranteed Income Certificates (GICs). These investments base their rate of return on the prime rate, which is set by the Bank of Canada’s trend-setting overnight lending rate. Rising inflation could prompt the Bank to delay further rate cuts, or increase its rate, which can lead to better GIC rates.

Check out the history of GIC rates to see how they react to interest rates and inflation over time.

Rising inflation and interest rates can have both negative and positive effects for savers. While rising inflation decreases the cash value of savings over time, a higher prime and Bank of Canada overnight lending rate can also prompt lenders to offer a higher interest rate on their savings products, such as high-interest savings accounts.

How inflation impacts grocery prices

Food inflation remains one of the most closely watched components of the Consumer Price Index, as Canadians feel changes in grocery prices more immediately than most other costs. While overall inflation has cooled, the cost of food in Canada continues to put pressure on household budgets.

In September 2026, prices for food purchased from stores rose 1.7% year over year, down from 2.8% in August. The slower pace was partly driven by lower prices for fresh vegetables (-2.9%) and sugar and confectionary products (-2.7%). Prices for other food preparations and fresh or frozen beef rose at a slower pace than in August.

Despite the relative slowdown, grocery prices have increased 33.0% since September 2020.

As food prices continue to rise faster than household incomes and overall inflation, many Canadians may need to adjust their shopping habits and grocery lists to fit their budget. Fortunately, there are several ways to help manage costs and make your grocery budget go further:

• Compare unit prices to get the best value
• Make a habit of using money-saving apps like Flipp, Checkout51, or Drop for coupons and cash-back offers
• Take advantage of price matching at participating grocery stores
• Pair coupons, promotions, and discounts with a rewards credit card to maximize your grocery savings

Best credit cards for groceries in Canada – by grocery store:

• Loblaws banner stores (No Frills, Real Canadian Superstore, Fortinos, Independent, and more): CIBC Dividend Visa Infinite Card
• Sobeys banner stores (Sobeys, Safeway, Foodland, FreshCo, Thrifty Foods, and more): Scotiabank Gold American Express Card and American Express Cobalt
• Metro banner stores (Metro, Food Basics, Super C, and more): BMO Eclipse Visa Infinite Card and Moi RBC Visa
• Costco: CIBC Costco Mastercard and Rogers Red World Elite Mastercard
• Walmart Supercentres: Tangerine Money-Back Credit Card and Walmart Rewards Mastercard

What is the Canada Core CPI?

In addition to the headline CPI numbers, there are also “core” measures of inflation, which strip out various items to provide a clearer picture of how price growth is evolving. These measures are closely monitored by the Bank of Canada when gauging inflation’s progress, and are key considerations in the central bank’s rate decision making. Core inflation measures are the following:

• CPI Trim: This excludes components of the CPI basket of goods which have price change rages within the tails of the distribution of price changes. More simply put, the CPI trim removes 20% of the weighted price variations at both the top and bottom ends of price changes over the course of the month. This removes volatility and extreme price movement from the basket, which can be based on outlier events; for example, severe weather impacting crop production, and by extension, the price of food.
• CPI Median: The CPI median tracks inflation growth that corresponds to the prices changes within the 50th percentile of the CPI basket within a given month. According to the Bank of Canada, “this measure helps filter out extreme price movements specific to certain components. This approach is similar to CPI-trim as it eliminates all the weighted monthly price variations at both the bottom and top of the distribution of price changes in any given month, except the price change for the component that is the midpoint of that distribution.”
• CPI Common: The CPI common tracks common price changes across the CPI basket’s categories. It uses a factor model (a type of statistical procedure) to determine what these common changes are, which helps remove price changes caused by factors specific to certain basket items.

Canada inflation rate history

Inflation is one of the single most important factors in any country’s economy, including Canada. Whether inflation rates are high or low influences everything from consumers’ purchasing power to Canadian mortgage rates and the overall strength of the Canadian economy. Statistics Canada publishes CPI data monthly, reflecting price changes from the previous reference period. These releases are closely watched by policymakers, lenders, and consumers.

Looking at Canada’s inflation history helps put today’s numbers into context. Since the COVID-19 pandemic, inflation has swung sharply in response to economic shutdowns, reopening pressures, and interest rate changes. Tracking these month-to-month movements shows how inflation has evolved and why short-term changes don’t always reflect longer-term trends.

Inflation growth since the pandemic

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