Canadian Inflation Holds Steady at 3% in August

Canada's inflation rate held steady at 3% in August, keeping price pressures above the Bank of Canada's 2% target. The stable energy prices and easing food-price pressures helped contain inflation, while services remained an area to watch.

Andrew DiCapua, principal economist at the Canadian Chamber of Commerce's Business Data Lab, said 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.

However, services, particularly travel-related categories, accounted for some of the upward movement in inflation. DiCapua identified gasoline prices as the biggest risk to higher headline inflation over the next few months.

Ryan Kirkley, CEO and co-founder of Global Settlement Network, said that the 3% headline rate should not be viewed in isolation because much of the inflation pressure remains concentrated in energy, while the Bank of Canada's preferred core measures are closer to target. 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 as uncertainty around trade policy persists. Avery Shenfeld, CIBC's chief economist, said that the bank's 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 said that CIBC does not expect rates to rise above its 2.75% estimate of neutral.