The agency said the acceleration was led by a 27.8% spike in gasoline prices last month compared with a year earlier, despite the switch to the less expensive winter gas blend.
Excluding gasoline, consumer prices increased 2.2% year-over-year in September.
The agency said fuel oil and other fuels surged 57.8% in September, hitting consumers hard in Atlantic Canada where many homes are heated with oil.
Grocery and beef prices increased, while prices on fresh vegetables and confectionery items fell
Meanwhile, grocery prices increased 1.7% last month, the smallest yearly increase since May 2024, according to Statistics Canada.
Driving the slowdown was a 2.9% drop in prices for fresh vegetables, while sugar and confectionary items fell 2.7%.
Beef prices, meanwhile, rose at a slower pace in September, up 8.7% compared with an 11% increase in August.
Despite the year-over-year slowdown, the agency said prices for groceries have increased 33% since September 2020.
Shelter prices and mortgage insurance see increases
Statistics Canada said shelter prices rose 1.8% in September, up from 1.5% in August.
In addition to the spike in fuel oil, the agency said a 4.9% increase in mortgage insurance and 1.2% increase in home maintenance and repair costs lead the acceleration.
The September inflation report is the Bank of Canada’s last look at price data before its next interest rate decision on Oct. 28.
Economists had broadly expected inflation to accelerate to 3.2% last month, up from 3% in August.
Andrew Grantham, senior economist with CIBC Capital Markets, said in a client note that the “hawkish tone” of Bank of Canada governor Tiff Macklem’s comments over the weekend had raised market expectations of an interest rate hike later this month.
But the inflation report “suggests that there is little rush and policymakers can take more time to assess how U.S. trade relations and the impact of new tariffs develop before raising rates,” Grantham said.
High energy prices could increase overall inflation
During a media roundtable from Thailand on Saturday, Macklem warned that persistently high energy prices were increasing the risk of broader inflation and that the central bank was prepared to raise rates if necessary.
He said the prevailing message from his peers at the International Monetary Fund meetings in Bangkok was that the global economy has been performing better than expected in the face of ongoing wars in Iran and Ukraine, sweeping trade disruptions and higher borrowing costs from rising bond yields.
But Macklem also said that resilience is increasingly “under strain” as shocks like the Middle East conflict persist and drive up energy prices.
