Quick Take

Inflation inched up last month but remains well below normal levels

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The Conference Board of Canada Economist Anna Feng offers the following insights on today's release of the Consumer Price Index (CPI) data:

Inflation remained muted in September—prices for gasoline and tourism-related services continue to be the main source of downward pressure. Core inflation held steady at 1.7 percentage points, which is below the Bank of Canada’s 2.0 per cent target. While some consumer products have faced upward price pressure, we expect overall inflation to remain at or below the central bank’s target until mid-next year.

  • The Consumer Price Index inched up 0.5 per cent in September compared to its reading at the same time last year, and up from the 0.1 per cent gain recorded in the previous two months.
  • Global demand for oil remains sluggish due to the slowdown in production and overall economic activity around the world. As such, gasoline prices were 10.7 per cent lower than year-ago levels in September. Excluding gasoline, inflation rose 1.0 per cent last month, up from a 0.6 per cent gain logged in August.
  • Strict travel restrictions amid the pandemic have weighed heavily on the prices of tourism-related services. As a result, prices for traveller accommodation plummeted 26.5 per cent in September. This was the main driver behind the tepid inflation number recorded this month.
  • Changes in household consumption patterns also affected consumer prices. For instance, as more Canadians work from home nowadays, buying new clothes is not deemed an essential spending anymore. As such, the suppressed demand for clothing drove its prices down 4.1 per cent this month. Meanwhile, stronger demand for cars supported a 2.7 per cent increase in passenger vehicle prices.
  • The average of the Bank of Canada’s three measures of core inflation sat at 1.7 per cent last month, matching the increase in the previous month.
  • Overall, this morning’s inflation data reflects a mild pick-up in consumer demand, but we are still far from a full recovery. Out of the eight major components of the CPI basket, only clothing and recreation prices trended lower than their levels in the previous year.
  • Transportation prices finally ended their decline in September, as they inched up 0.1 per cent from year-ago levels. We expect inflation to gradually pick-up and breach the Bank of Canada’s 2.0 per cent target around mid 2021.

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Anna Feng

Anna Feng


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