Canadian CPI rises to 1.9% in August
It appears the small improvement seen in consumer prices in July was short lived; the latest inflation data reveals the Consumer Price Index (CPI) year-over-year pace of growth ticked back up to 1.9% in August from 1.7% in July, and is now back on par with June’s reading.
According to Statistics Canada, the higher headline number was because gas prices decreased by a smaller margin in August, dropping 12.7% compared to the 16.1% decrease recorded in July. With gas prices stripped out, the CPI would have increased 2.4% in August, slightly lower than the 2.5% growth it would have achieved in the previous three months.
Food costs rise higher
Overall food costs also ticked slightly higher, coming in at 3.5% growth, compared to 3.4% last month. According to StatCan, higher prices were concentrated in increases for meat, which rose 7.2% compared to 4.7% in July. Fresh fruit, however, dipped by 1.1%, largely due to lower cherry and grape prices.
Food purchased in restaurants rose 3.3%.
Rent continues to be the biggest inflation contributor
Shelter costs, meanwhile, continued to moderate, rising 2.6% in August compared to 3% the previous month. This was pulled down by a cooling in rent costs (4.5% compared to the previous 5.1%), as well as mortgage interest costs, which rose 4.2%.
The latter represents the amount of mortgage interest paid by borrowers each month, and has been steadily decreasing as mortgage rates have lowered over the last year and a half; it’s down significantly from its 30.9% peak in August 2023.
What does this inflation report mean for interest rates?
Economists were looking keenly at this latest inflation report for clues to the Bank of Canada’s next rate move; the central bank is to make its next announcement on September 17. Recent soft jobs numbers have already increased the likelihood that the BoC will cut its trend-setting Overnight Lending Rate – which controls the pricing for lenders’ prime rates and variable borrowing products – by a quarter of a percentage point, to 2.5%.
This most recent set of CPI numbers will give the BoC the leeway to make that cut. The first factor is that the headline number increases by less than expected; market watchers had anticipated it would increase to a full 2%. The second is that there’s been some slight improvement among the “core” measures of inflation, which are closely monitored by the BoC.
While the CPI Median measure remained unchanged at 3.1%, the CPI Trim – which removes the top and bottom 20% of weighted price variations over the course of the month – dipped slightly to 3% from the previous 3.1.
In an economic note following the inflation release, Douglas Porter, Chief Economist and Managing Director of Economics at BMO, writes that tomorrow’s rate cut looks baked in – but the central bank will continue to be highly data dependent for future rate decisions.
“This report was mostly a low-drama affair, with the major measures rising a tame 0.2% m/m (or less) in seasonally adjusted terms. That pace won't cause the Bank of Canada much stress, thus keeping them on track for a rate cut at tomorrow's decision,” he writes.
“The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line. However, we suspect the Bank will continue to take it one step at a time, restrained by the 3% y/y trends in some core measures, as well as the likelihood that headline inflation will pop, at last temporarily, in next month's report.”
The next inflation report, which will reflect September’s price data, is scheduled for October 21, 2025.
Also read:
Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.