Edited by Simisola Fagbola, Econoday Economist
Economic Indicators
Inflation
Canada’s headline inflation picked up more than expected in September, edging up 0.1 percent on the month and 2.4 percent year-over-year from 1.9 percent in August. Forecasters in an Econoday survey had expected prices to edge down 0.1 percent on the month and rise 2.2 percent from a year earlier.
Overall inflation averaged 2.0 percent in the third quarter, up from 1.8 percent in the second quarter but right on the Bank of Canada’s target.
The headline numbers are unlikely to alter the Bank of Canada’s focus on the softening job market and growth trend recently highlighted by Governor Tiff Macklem.
Excluding food and energy, the CPI index was down 0.1 percent from August, while expectations had focused on an increase of 0.1 percent. That being said, the 12-month increase of 2.4 percent was the same as the previous month. The Bank of Canada’s own measures of core inflation also ticked up to an average of 3.0 percent in September from 2.9 percent in August.
But the central bank is also focused on expectations, and on that front, its quarterly Business Outlook Survey published Monday points to softer expectations.
Even as businesses continue to expect upward pressure from tariffs, inflation expectations for one year ahead are easing, with weak demand limiting firms’ ability to pass costs through to customers, the Business Outlook Survey showed.
The percentage of firms expecting inflation to top 3 percent has declined to 18 percent from 23 percent, while the proportion expecting inflation between 1 and 2 percent has almost doubled to 21 percent from 12 percent.
Recently, Governor Tiff Macklem downplayed the 60,400 gain in September employment, pointing out the slow growth and overall soft job market conditions. In fact, firms told the central bank they found it easier to find labor and expect slower wage growth. The sister consumer survey described perceptions of negative labor market conditions.
In September, goods prices increased 0.3 percent on the month and 1.6 percent year-over-year, and services edged down 0.1 percent from August while still rising 3.0 percent from a year earlier.
Transportation and clothing and footwear were the only two categories recording lower prices, with declines of 0.5 percent and 0.1 percent, respectively. All other six categories were up, including a 0.4 percent gain for food. Gasoline was up 1.9 percent, and energy overall up 0.3 percent. On a 12-month basis, food was up 3.8 percent and energy was down 2.6 percent, with gasoline down 4.1 percent.
A 4.8 percent gain in rent and a 3.6 percent increase in mortgage interest cost were the top upward contributors to the 12-month CPI increase, while gasoline and homeowners’ replacement cost were the main downward contributors.
On a seasonally-adjusted basis, both headline and core consumer prices increased 0.4 percent on the month, up from 0.2 percent in August.
The UK consumer price index (CPI) held steady at 3.8 percent year-over-year, unchanged from August, while the broader CPIH measure, which includes owner occupiers’ housing costs, also stayed firm at 4.1 percent. On a monthly basis, CPI recorded no movement, and CPIH increased marginally by 0.1 percent mirroring trends from the same period last year.
Transport costs exerted the strongest upward influence on inflation, suggesting persistent fuel and travel-related expenses, while lower prices in recreation, culture, and food provided balancing relief for households. Core inflation, which strips out volatile items such as energy and food, showed a slight cooling as core CPI dipped to 3.5 percent and core CPIH to 3.9 percent. Goods inflation edged up modestly to 2.9 percent, whereas services inflation remained elevated at 4.7 percent for CPI and 4.9 percent for CPIH, emphasizing ongoing price rigidity in the service sector.
Indeed, the latest updates indicate that inflationary pressures have plateaued rather than receded. This reflects a mixed environment where easing core prices contrast with persistently high service costs.
Japan’s core CPI measure, which excludes fresh food, rose 2.9 percent on year in September, just below the 3.0 percent rise forecasters expected. This was up from 2.7 percent in August.
JAPAN SEPT CORE INFLATION ACCELERATES AS ENERGY PRICES RISE ON YEAR INSTEAD OF FALLING; PROCESS FOOD PRICES GAIN EASES
JAPAN SEPT TOTAL CPI +2.9% Y/Y, 49TH STRAIGHT RISE (AUG +2.7%); MEDIAN FORECAST +2.9%
JAPAN SEPT CORE-CORE CPI (EX-FRESH FOOD, ENERGY) +3.0% Y/Y, 42TH STRAIGHT RISE (AUG +3.3); MEDIAN FORECAST +3.1%
JAPAN SEPT CPI: PROCESSED FOOD +7.6% (+1.83 POINT) VS. +8.0% (+1.90 PT) IN AUG
JAPAN SEPT CPI: ENERGY PRICES +2.3% Y/Y (+0.17 POINT VS. -3.3% (+0.27 PT) IN AUG
JAPAN SEPT CPI SERVICES (EX-OWNERS’ EQUIVALENT RENT) +2.0% VS. +2.1% IN AUG; GOODS (EX-FRESH FOOD) +4.4% VS. +3.8% IN AUG
JAPAN SEPT CPI: WAGE GROWTH STILL BEHIND HIGH COSTS FOR DAILY PROCESSED FOOD, UTILITIES
US consumer price inflation rose at a slightly slower pace than expected in September, with a lift from rising gasoline prices. The BLS noted that it collected the data before the federal government shutdown. This report is unlikely to dissuade the Federal Reserve from another rate cut when the FOMC meets October 28-29, but the continued lack of progress toward the central bank’s 2 percent annual inflation objective could lower expectations for rate cuts later.
The Consumer Price Index in September slowed a bit to +0.3 percent, following a 0.4 percent rise in August, and a 0.2 percent uptick in July. The September CPI reading was below expectations for a 0.4 percent rise in the Econoday survey of forecasters.
Over the last 12 months, consumer prices are up 3.0 percent, faster than the 2.9 percent year-over-year rise in August. Expectations in the Econoday survey were for a 3.1 percent increase.
Core CPI, excluding food and energy prices, is up 0.2 percent, after rising 0.3 percent in August, and +0.3 percent in July. Consumer prices less food and energy jumped 3.0 percent from September 2024, following a 3.1 percent year-over-year rise in August and 3.1 percent expected in the Econoday survey.
After jumping 0.4 percent in August, shelter costs rose 0.2 percent in September (and are up 3.6 percent year-over-year). Food prices are up 0.2 percent, after a 0.5 percent spike in August, with grocery prices up 0.3 percent last month, and restaurant prices seeing just a 0.1 percent uptick.
Energy costs surged 1.5 percent over the month, following a 0.7 percent rebound in August – boosted by a 4.1 percent spike in gasoline prices.
Energy prices are up 2.8 percent year-over-year, following a 0.2 percent dip for the 12 months ending August. Food prices increased by 3.1 percent compared to September 2024, following a 3.2 percent rise in August.
GDP
China’s GDP rose 1.1 percent on the quarter in the three months to September, as it did in the three months to June, with year-over-year growth slowing from 5.2 percent to 4.8 percent. Monthly activity data also published today showed solid growth in industrial production and retail sales in September but weak investment and house prices.
In their statement accompanying today’s data, officials characterised the data as showing the economy "maintained a stable momentum of progress". Although officials refrained from explicitly referring to trade tensions with the United States, they noted that "the economy still faces multiple risks and challenges, with increasing external instability and uncertainty". Officials reiterated their commitment to "more proactive macroeconomic policies" but provided no specific guidance about whether changes to policy settings will be considered in the near-term.
International trade
Japan’s export values rose by 4.2 percent on year in September, the first such rise in five months, after declining 0.1 percent on year in August. The September increase was just below the consensus expectation calling for a 4.6 percent rise.
JAPAN SEPT TRADE: EXPORT VOLUMES DOWN FOR 2ND STRAIGHT MONTH; TRUMP TARIFFS TAKE TOLL DESPITE JAPANESE CAR MAKER DISCOUNT SALES
JAPAN SEPT IMPORTS +3.3 Y/Y (AUG -5.2%), 1ST RISE IN 3 MONTHS; MEDIAN FORECAST +1.7%
JAPAN SEPT TRADE DEFICIT ¥234.6 BLN (AUG REVISED ¥242.78 BLN DEFICIT); 3RD STRAIGHT DEFICIT; MEDIAN FORECAST ¥65.10 BLN DEFICIT
JAPAN SEPT EXPORT Y/Y RISE LED BY COMPUTER CHIPS, MINERAL FUELS, RAW MATERIALS
JAPAN SEPT IMPORT Y/Y RISE LED BY COMPUTERS, SMART PHONES, AIRCRAFT; COAL, CRUDE OIL, LNG CONTINUE TO DROP
JAPAN SEPT EXPORTS TO US -13.3% Y/Y, 6TH STRAIGHT DROP (AUG REVISED -13.7% FROM -13.8%), LED BY AUTOS, CHIPMAKING EQUIPMENT, ENGINES
JAPAN SEPT EXPORTS TO EU +5.0%, 2ND STRAIGHT RISE (AUG REVISED TO +5.6% FROM +5.5%), LED BY AUTOS, MINING EQUIPMENT, ENGINES
JAPAN SEPT EXPORTS TO CHINA +5.8% Y/Y, 1ST RISE IN 7 MONTHS (AUG -0.5%) LED BY RAW MATERIALS, AUTOS, COMPUTER CHIPS
Housing
US sales of existing homes are up in September, reflecting a combination of lower mortgage rates, increased supply, and moderation in prices. NAR chief economist Lawrence Yun said the rise was not a breakout from the tight band of sales that has predominated in 2025, but that it does show that consumers respond to lower mortgage rates.
Sales are up 1.5 percent in September to 4.06 million units at a seasonally adjusted annual rate after an unrevised 4.00 million units in August and 4.1 percent higher than 3.90 million units in the year ago month. The September increase matches the consensus of 4.06 million units in the Econoday survey of forecasters.
The September rise is concentrated in resales of single-family homes which are up 1.7 percent to 3.69 million units while resales of condos and co-ops are flat.
Sales of existing homes are for contracts closed. In September, sales are for contracts mainly taken out in August when the Freddie Mac weekly average for a 30-year fixed rate mortgage fell as low as 6.56 percent in the August 28 week compared to 6.72 percent in the July 31 week. There is potential for another pick up in the sales pace in October as the rate fell as low as 6.26 percent in the September 18 week. Yun said that NAR reports from realtors about closings of new construction shows September up 11.2 percent from a year ago which is probably related to falling mortgage rates.
The months’ supply of homes available for sale is unchanged at 4.6 in September from August and larger than 4.2 in September 2024. The median price of an existing home is down 1.7 percent to $415,200 in September from August, but up 2.1 percent from a year earlier. The price of an existing home typically rises in the first half of the year and declines in the second half. Nonetheless, on a year-over-year basis, home prices continue to increase steadily.
Existing homes listed remain on the market for an average of 33 days in September, up from 31 days in August and 28 days in September 2024. The share of first-time buyers is up to 30 percent in September from 28 percent in August and 26 percent in September 2024.
US Review
Belated CPI Report Shows Ongoing Cost Pressures
By Theresa Sheehan, Econoday Economist
As the US federal government shutdown lengthens, there is an absence of major data reports to drive the narrative for the economic outlook.
The NAR’s report on existing home sales in September shows a decent 1.5 percent increase in sales to 4.06 million units at a seasonally adjusted annual pace. It reflects rising sales activity for the past three months as mortgage rates have dipped, inventories increased, and price increases moderated. The Census data on sales of new single-family homes was not released.
However, underlying sales activity remains less than stellar. Potential homebuyers are seeking optimal affordability and are willing to wait for the right unit at the right price with the right mortgage rate. While mortgage rates are continuing to fall lower, the incentive is limited while economic uncertainty is high and job security is in question. The weekly MBA data on mortgage applications indicate that buyers are cautious while current mortgage holders are busy refinancing, possibly to get ahead of potential hits on household income from unemployment and rising prices. Mortgage applications were down 0.3 percent in the October 17 week with purchase applications down 5.2 percent and refinancing up 4.0 percent. The demand for adjustable rate mortgages suggests that many are opting for the lowest monthly payment possible. Despite a dip in rates, applications for fixed rate mortgages were down 2.0 percent from the prior week while adjustable rate applications were up 16.1 percent.
The release of the CPI for September was necessitated by the deadline to set the cost-of-living-adjustment (COLA) for January 2026 social security benefit payments. While the annual pace of consumer price increases was not much changed from the August report, the composition of price pressures suggests that the effects of tariffs are not yet done. The CPI is up 3.0 percent year-over-year in September, a tenth higher than in August. The core CPI is up 3.0 percent compared to September 2024, up a tenth from the prior reading.
However, upward price pressures from services remain well above the Fed’s 2% inflation target, while commodities costs are escalating. The September CPI for services is up 3.6 percent from a year ago, down two-tenths from the August report. The CPI for commodities in September is up 1.9 percent year-over-year after up 1.3 percent in August. Prices for goods are rising more quickly than prices for services are falling.
