Scotiabank Previews This Week's CPI Data in Canada

10:01 AM EDT, 10/20/2025 (MT Newswires) -- The Canadian September consumer price index lands on Tuesday at 8:30 a.m. ET, said Scotiabank.

The bank estimated headline inflation to be flat month over month in seasonally unadjusted (NSA) terms as per the polling convention. That could translate into a 0.4% month-over-month seasonally adjusted (SA) rise based on a stable SA factor for September.

Canada ended most retaliatory tariffs against the United States at the start of September. They affected about $44 billion of goods imports. Canada retained tariffs on autos and metals that account for about another US$15 billion of imports.

Taken literally, ending 25% tariffs on 6% of imports could be a meaningful drop in CPI assuming full pass through, state Scotiabank. However, when the tariffs were first applied and over subsequent months, the discernible effect on CPI was negligible. By corollary, the bank has assumed their removal will also be a negligible influence on September CPI.

Aside from their limited application, one reason for no real pass through of retaliatory tariffs may be absorption in profit margins, pointe out Scotiabank. Another may be that Canada's inventory-to-sales ratio is at the highest since the early 1990s and as such there is a lot of pre-tariff and early-tariff inventory sitting around.

A reason may be that businesses are hesitant to adjust prices until they know how permanent any tariffs may be.

In any event, the Bank of Canada's preferred measures of core inflation -- trimmed mean and weighted median CPI -- exclude the effects of tariffs and other indirect taxes but not the potential indirect effects. It's possible that the core gauges may show crowding in behind the elimination of tariffs, but that wasn't very evident in the opposite direction when retaliatory tariffs were first introduced, it added.

Gasoline is assumed to be a modest contribution to total CPI inflation along with shelter prices.

The year-over-year inflation rate is expected to rise to 2.3% from 1.9% the prior month and mainly because of a shift in year-ago base effects. The elimination of the consumer portion of the carbon tax in early April will continue to weigh down the yearly inflation rate until next April after which it should jump when the year-ago comparisons shift to the lower price level.

In any event, Scotiabank is no longer sure what the BoC follows when it comes to inflation. The main reason for this is that the bank don't think the BoC is sure either. There are already many measures of core inflation beyond trimmed mean, weighted median, and traditional core inflation excluing food and energy.

The BoC is theorizing that maybe it could add at least two more complicated measures as part of next year's review. More data doesn't always drive better decisions, according to Scotiabank. In the end, it's not the data to date that will matter the most -- it's the judgement applied to future

inflation risks that will determine whether policy is on the right track and that hasn't been a strong suit for the BoC.

The BoC's MPR forecasts for inflation miss inflection points on a routine basis despite all the best models, said Scotiabank.

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