Canada’s consumer price index (CPI) rose 3 per cent on a year-over-year basis in August, matching July’s number, as energy remains a critical factor for inflation going forward.
All core inflation measures stayed firmly on target, which suggests that the overall impact of tariffs and the global energy shock is relatively contained for now.
Whether that remains the case in the coming months is uncertain. At some point, higher energy prices could stop being isolated and may spread to other categories as transportation prices and the costs of goods and services climb.
In August, gasoline prices rose 22.8 per cent on a year-over-year basis—down slightly from July, but still firmly elevated from a year ago. But lower energy prices would not last; in September, oil prices surpassed US $100 for the first time since May.
Our baseline remains an interest rate hold at 2.25 per cent from the Bank of Canada until the end of 2026, before hiking in the first quarter of 2027.
However, the odds of a hike in December rose slightly since the energy shock caused by the ongoing, seven-month war in the Middle East appears to have no end in sight.
The Bank of Canada cannot control energy prices. Inflation is mostly contained right now—but the longer the energy shock goes on, the more likely inflation will become broad-based.
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We expect inflation next month to stay above target and near 3 per cent. High energy prices should be partially offset by lower prices on housing and food.
Even though the trade tensions with the U.S. dominate the headlines, Canada’s counter-tariffs—which kicked in Sept. 8—are unlikely to lift topline inflation in a meaningful way. This is because the tariffs on imports from the U.S. only make up a small portion of total U.S. imports.
Furthermore, a 50 per cent tariff would almost certainly lead to suppliers and households switching to substitutes—meaning the eventual impact of tariffs could be quite small.
What the data shows
The main driver for the 3 per cent headline number stems from higher prices for travel tours. Travel tour prices rose 26.1 per cent due to higher prices for jet fuel and the base year effect.
In 2025, Canadian travel to the U.S. dropped sharply, which put downward pressure on prices. That drop has since stabilized—and so have prices.
For the first time since July 2024, groceries prices rose at a slower pace than the all-items figure in the CPI.Get RSM’s Market Minute commentary every morning. Subscribe now.
