BAF NEWS

October 2025 CPI Overview

Canada’s inflation step-down continued in October. Headline CPI rose 2.2% year over year, down from 2.4% in September, according to Statistics Canada and major outlets.

By the numbers:

• 2.2% y/y headline CPI in October; 2.4% in September.
• The deceleration marked a modest but broad move lower.

Zoom in:

The composition shows energy disinflation doing heavy lifting, with food inflation easing as well. However, shelter remains a brake on faster progress.

Monthly CPI and Core Measures

On a monthly basis, price growth was modest. CPI rose 0.2% in October, while the seasonally adjusted index edged up 0.1%.

Core inflation indicators inched lower but stayed near 3%. The Bank of Canada’s preferred measures, CPI-median around 2.9% and CPI-trim near 3.0%, suggest underlying pressures are easing, but not yet resolved.

By the numbers:

• +0.2% m/m CPI; +0.1% m/m seasonally adjusted.
• CPI-median ~2.9% y/y; CPI-trim ~3.0% y/y; the average sits near 3.0%.

The upshot: Disinflation is intact, yet core remains above target. Therefore, policymakers still need evidence of durability.

Role of Gasoline and Food Prices

Energy told the story this month. Gasoline prices fell 9.4% year over year, and that decline largely drove the headline cooldown. Excluding gasoline, inflation held at 2.6%, higher than the headline, but stable.

Food price growth also eased. Prices for food purchased from stores rose 3.4% year over year in October, down from 4.0% in September. Grocery inflation remains above overall CPI, but the direction helps households.

By the numbers:

• Gasoline: −9.4% y/y.
• CPI excluding gasoline: +2.6% y/y.
• Groceries: +3.4% y/y in October vs. +4.0% in September.

Zoom in:

The mix points to continued relief at the pump and smaller grocery increases. Even so, services categories have not cooled as quickly.

Shelter and Telecom Components

Shelter pressures showed mixed signals. Mortgage interest costs rose 2.9% year over year, the slowest annual pace in over three years. However, rent inflation stayed elevated, remaining above 5%.

Telecom moved the other way. Prices for cellular services climbed 7.7% year over year, the first annual increase since April 2023. This shift partially offset relief from energy and food.

By the numbers:

• Mortgage interest costs: +2.9% y/y, slowest in 3+ years.
• Rent: above +5% y/y.
• Cellular services: +7.7% y/y; first annual increase since April 2023.

The upshot: Goods disinflation is progressing, but pockets of services inflation persist. Consequently, the last mile to 2% looks bumpier.

Bank of Canada Policy Implications

The latest print supports a steady hand from the Bank of Canada. With headline at 2.2% and core near 3%, the data reinforce expectations for a maintained policy pause at 2.25%, according to available reports.

Context matters. The Bank has already pivoted to the sidelines after back-to-back cuts, and softer inflation gives it space to watch incoming data. Still, officials will want more confirmation that core momentum is easing on a trend basis.

Zoom in:

Three-month core dynamics have improved but remain above the 2% target zone. Therefore, forward guidance should stay cautious.

What’s next: Markets will parse upcoming wage, shelter, and services readings for durability. Additionally, any reversal in gasoline declines would complicate the outlook.

Financial Market Reaction

Markets leaned into the cooling read. The Canadian dollar weakened to a 10-day low following the report, while two-year bond yields eased.

By the numbers:

• CAD: fell to a 10-day low post-release.
• Two-year yields: moved lower as traders priced steady policy.

The upshot: Investors see less urgency for further tightening and limited pressure for near-term hikes. However, the Bank of Canada will likely keep a watchful stance until core measures clearly trend lower.

Zoom in:

The growth-inflation mix now looks more balanced for a holding pattern. But the path to target still runs through shelter and services.