Canada’s inflation rate holds at 3% in August as higher oil prices show limited spillover

Canada’s annual inflation rate held at three per cent in August, with higher energy costs showing limited evidence of spreading into broader consumer prices, StatCan reported Monday.

The consumer price index reading matched economists’ forecasts. Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said the report offered little reason for the Bank of Canada to raise interest rates and could cool market expectations for an October increase.

Reitzes said oil prices remained a concern because sustained increases could eventually feed into broader inflation. According to LSEG Data & Analytics, market odds of an interest-rate increase at the Bank of Canada’s Oct. 28 meeting had risen to 60 per cent by midday Monday.

The Middle East conflict continued to raise gasoline prices in August, although the annual increase slowed to 22.8 per cent from 25.7 per cent a month earlier. Excluding gasoline, consumer prices rose 2.4 per cent.

Slower gasoline inflation was offset by higher costs for rent, travel tours and air travel. StatCan said travellers paid more as fuel surcharges rose and airlines adjusted to a sharp decline in Canadian travel to the United States in 2025. Rent rose 2.8 per cent year over year in August, up from 2.5 per cent in July.

Grocery inflation eased, with food prices rising 2.8 per cent year over year — slower than overall inflation for the first time since July 2024. Cheese, yogurt and other dairy products helped slow the increase: dairy prices rose 0.7 per cent in August after increasing 3.1 per cent in July. Smaller price increases for pork, condiments, spices and vinegars also contributed.

Royal Bank of Canada economist Abbey Xu said food affordability remained difficult for households despite a recent improvement in the direction of food inflation. Consumers may still find it expensive to fill their gas tanks and buy groceries, she said, and cost-of-living pressure remains significant.

Clothing prices fell 1.1 per cent year over year in August, led by a 2.3 per cent decline in men’s clothing and a 1.9 per cent drop in children’s clothing. StatCan said the Atlantic provinces recorded Canada’s highest inflation rates, with price growth accelerating in Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

Xu described the August data as fairly reassuring, with core inflation measures near the Bank of Canada’s two per cent target and limited evidence of energy costs spreading to other consumer prices. She said the outlook depends largely on how long elevated energy prices persist. Her forecast has the Bank of Canada holding rates for the rest of 2026 before gradually raising them beginning in 2027.