Good morning. Bouncing gas prices and stubborn grocery costs will feed into today’s headline inflation report. But days ahead of the Bank of Canada’s next rate decision, Governor Tiff Macklem and Co. will be looking at the underlying trends – measures that strip out volatile swings to show where prices are truly heading. That’s in focus today.

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When Statistics Canada reports its September inflation data this morning, most of the attention will go to the headline figure – the all-items Consumer Price Index, or CPI. That’s the broadest measure of price changes across the economy, and the one that tends to lead media coverage because it reflects what Canadians see day-to-day at the grocery store, the gas pump or the pharmacy.

The headline number captures every category in the CPI basket, from rent and energy to electronics and vegetables. It’s the simplest way to describe inflation’s impact on household budgets. But it can also be misleading: Volatile components like gasoline and travel can swing sharply month-to-month, obscuring whether underlying inflation pressures are truly easing.

That’s why the Bank of Canada focuses on measures designed to filter out month-to-month volatility. These include “CPI-trim” and “CPI-median,” two key indicators of underlying inflation.

• CPI-trim excludes the biggest outliers each month – roughly the top 20 per cent and bottom 20 per cent of price changes – and averages the rest.
• CPI-median identifies the midpoint of all monthly price changes across the basket in any given month.

But the bank also tracks a long list of CPI variants that strip out things like energy, food or taxes in ways the trim and median measures don’t. In all, more than a dozen gauges feed its view of how broad and persistent price pressures are, sliced across monthly, three-month, six-month and annual trends.

In a speech earlier this month, BoC deputy governor Rhys Mendes even said inflation’s growing volatility – driven by trade and geopolitical shocks – means the bank must cast a wider net of data to judge where prices are really heading.

No matter how many acronyms it ends up parsing, the bank is constantly reassessing how best to see the world through different lenses before making a decision.

What to watch today

Leading forecasts are similar, but the Bank of Montreal expects headline inflation to rise slightly above 2 per cent in September – the first reading over that threshold since March – before easing again in the months ahead.

“Big picture, there are still a few elements bringing inflation down,” said Shelly Kaushik, a senior economist at BMO. Those include the removal of Canadian countertariffs on U.S. goods and decelerating shelter costs as mortgage interest rates ease.

Today’s expected uptick mainly reflects a statistical mirage: Prices appear higher this year only because energy costs fell sharply a year ago, creating an unusually low comparison point. Lower fuel prices now are masking how much other costs are still rising.

The bank also considers indicators like its quarterly Business Outlook Survey. The latest report, released yesterday, showed firms still contending with tariff-related cost pressures – scaling back hiring and investment plans as demand softens.

Policymakers and market watchers are using all of these signals to “see beyond the headline,” Kaushik said in an interview. “It’s really about where underlying inflation is. It’s not one measure or even a couple of measures, but the overall direction that will tell us where the risks lie for the Bank of Canada as it debates whether to cut next week.”

The bigger picture

Markets are betting the Bank of Canada will cut its policy rate by a quarter-point next week, lowering it to 2.25 per cent. Swap prices – market trades that reflect where investors expect the bank’s benchmark rate to be after its next meeting – now imply roughly an 80-per-cent chance of a move, reflecting confidence among traders and bond investors that inflation has slowed enough for the bank to ease.

For homeowners with variable-rate mortgages, that means more relief is in sight. Fixed-rate borrowers will feel the impact more slowly since those loans track longer-term bond yields.