The August inflation data come one day before the Bank of Canada’s September interest rate announcement. (Photo by Zou Zheng/Xinhua via Getty Images) · Xinhua News Agency via Getty Images
Canada’s annual inflation rate rose to 1.9 per cent in August, picking up from 1.7 per cent in July, as gasoline prices fell less sharply and food costs continued to climb, according to Statistics Canada data published Tuesday. The reading came in just shy of the two per cent increase economists had expected, reinforcing a broad but not universal view that the Bank of Canada (BoC) will cut interest rates on Wednesday.
“Inflation remained largely unthreatening in August which, combined with recent weakening in the labour market, should make an interest rate cut tomorrow a done deal,” said Andrew Grantham, senior economist at CIBC.
“With core measures of inflation likely to cool further in the months ahead thanks to the slack building up in the economy and the removal of many retaliatory tariffs on September 1st, we not only expect a 25bp cut tomorrow but also a further reduction at the October meeting.”
Among most economists, the debate is less about whether the BoC will cut Wednesday and more about how far it will go. CIBC and Scotiabank each expect a second reduction as soon as October, pointing to slack in the economy and the fading impact of tariffs. Desjardins goes further, with economist Royce Mendes calling a Wednesday cut “the obvious course of action” and arguing the market is still underpricing Desjardins’ forecast for additional cuts to bring the overnight rate to 2.0 per cent.
Others are more cautious. BMO chief economist Douglas Porter warned gas prices are likely to jump in September and “will juice headline inflation well above” two per cent. That forecasted headline jump and core inflation that continues to trend higher doesn’t rule out further cuts, Porter said, but “we suspect the Bank will continue to take it one step at a time.”
RBC remains the main outlier, with economist Abbey Xu calling the decision a “close call” and pointing to sticky core inflation, resilient consumer spending, and upcoming fiscal stimulus as reasons the Bank could hold. National Bank economists Taylor Schleich and Ethan Currie pointed out that inflation looks “artificially low” because of April’s carbon tax removal, with underlying inflation closer to 2.4 per cent. Despite that, National Bank forecasts a cut Wednesday and again in October, given rising unemployment.
Gas prices were lower than a year ago due to the removal of the consumer carbon tax, but the price drop was smaller in August than in previous months. Prices at the pump were down 12.7 per cent compared with a year earlier, after a 16.1 per cent drop in July. Statistics Canada noted that “in August 2024, [gas] prices declined 2.6 per cent month over month, as concerns about slower economic growth began to emerge. In August 2025, prices rose 1.4 per cent on a monthly basis due in part to higher refining margins, offsetting lower crude oil costs.”
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Food costs rose 3.4 per cent from a year earlier, with meat up 7.2 per cent, including a 12.7 per cent surge for beef, while processed meats gained 5.3 per cent. Fresh fruit went the other way, falling 1.1 per cent after a 3.9 per cent increase in July, led by grapes, berries and other fruit.
Desjardins’ Mendes said “price increases in tariff-exposed categories should normalize quickly, with some even seeing price declines in the months to come.” Some of those declines may already be materializing: the CEO of Sobey’s parent company Empire recently said inflation at the grocer was “way below” national CPI last quarter.
The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line.BMO chief economist Douglas Porter
Rent climbed 4.5 per cent and mortgage interest 4.2 per cent, while vehicle purchases gained four per cent. Travel remained cheaper, with package tours down 9.3 per cent year-over-year and airfares 7.6 per cent. Cellphone services also edged higher on the month as carriers pulled back on back-to-school promotions.
On a monthly basis, CPI decreased 0.1 per cent in August. Seasonally adjusted, CPI rose 0.2 per cent. Core measures of inflation, to which the BoC pays particular attention, were steady. CPI-median held at 3.1 per cent, while CPI-trim fell to 3.0 per cent from 3.1 per cent. The core numbers carve out more volatile items for a clearer view of underlying price pressures.
While both measures remain around three per cent on a year-over-year basis, shorter-term measures are less elevated. Several economists pointed out that the three-month annualized pace of CPI-trim and CPI-median runs closer to 2.5 per cent.
“The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line,” BMO’s Porter wrote.
Regionally, prices rose at a faster pace in eight provinces, with Quebec posting a 2.7 per cent annual increase and Nova Scotia 2.2 per cent.
In July, CPI fell to 1.7 per cent year-over-year, driven largely by lower gasoline prices.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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