Canada's Inflation Rate Holds Steady at 3% Amid Trade Policy Uncertainty

Canada's inflation rate held steady at 3% in August, according to recent data. This keeps price pressures above the Bank of Canada's 2% target but does not indicate a broad acceleration that would require an immediate interest rate response from policymakers. Analysts suggest that relatively stable energy prices and easing food-price pressures have helped keep inflation contained.

Andrew DiCapua, principal economist at the Canadian Chamber of Commerce's Business Data Lab, stated that 'inflation is holding steady as summer comes to a close.' He noted that oil prices were relatively stable in August and food-price pressures eased somewhat. Most measures that strip out volatile components were also steady, while services, particularly travel-related categories, accounted for some of the upward movement.

Ryan Kirkley, CEO and co-founder of Global Settlement Network, emphasized that the 3% headline rate should not be viewed in isolation because much of the inflation pressure remains concentrated in energy. He argued that the data do not yet point to a broad-based inflation problem that would require an immediate policy response.

CIBC Capital Markets expects the Bank of Canada to remain on hold in October due to uncertainty around trade policy. Avery Shenfeld, CIBC's chief economist, stated that their base case assumes Canada and the United States will resume talks before year-end, with some tariffs eventually unwound in early 2027.

CIBC has brought forward its call for the first of two quarter-point rate hikes to the first quarter of 2027 from the second quarter, citing a higher path for headline inflation linked to the deteriorating situation in the Persian Gulf. However, Shenfeld noted that CIBC does not expect rates to rise above its 2.75% estimate of neutral.