Inflation holds at 3% in August as grocery prices cool and core measures stay near 2%

Canada's inflation rate held steady in August. Statistics Canada reported on Monday that the Consumer Price Index rose 3.0% year over year, the same pace as in July and in line with the forecast of analysts polled by Reuters.

Gasoline remained the main source of pressure, but it rose less quickly than in July. That slowdown was offset by higher prices for travel tours and rent, keeping the headline rate unchanged.

The numbers vs expectations

The Bank of Canada's preferred core measures stayed subdued: CPI-median was 2.0% and CPI-trim was 1.9%, unchanged from July.

• All-items CPI: +3.0% year over year (July: +3.0%; forecast: 3.0%)
• Monthly change: -0.1%, or +0.2% seasonally adjusted (analysts polled by Reuters expected no change)
• CPI excluding gasoline: +2.4%, up from +2.2%
• Gasoline: +22.8%, down from +25.7%
• Food purchased from stores: +2.8%, down from +3.1%
• Shelter: +1.5%, up from +1.3%
• Rent: +2.8%, up from +2.5%
• Travel tours: +26.1%, up from +15.2%, partly a base-year effect

Groceries finally slow below the headline

The most welcome detail for households was at the grocery store. Food price growth fell below the all-items rate for the first time since July 2024. Dairy led the slowdown, rising just 0.7% after 3.1% in July, with cheese and yogurt the biggest contributors. Smaller increases for fresh or frozen pork, condiments and fresh fruit also helped. Still, grocery prices are up 29.0% since August 2021, so the relief is in the pace of increases, not in lower bills.

Context: energy and the Bank of Canada

Gasoline stayed elevated as the conflict in the Middle East continued, and fuel oil prices jumped 43.7% year over year, which is why the Atlantic provinces posted the highest inflation rates. Clothing prices fell 1.1% from a year earlier.

The Bank of Canada held its policy rate at 2.25% on Sept. 2. Last month it said it would not hesitate to raise rates multiple times if inflation stays high and spills into core measures. With CPI-median and CPI-trim near 2%, Monday's report offers little evidence of that spillover so far. The loonie slipped after the release, trading at 71.90 U.S. cents, while the two-year Government of Canada yield rose 1.4 basis points to 2.703%.

The risks

A 3% headline rate sits at the top of the Bank's 1% to 3% target range, and the main driver, energy, depends on geopolitics. Canada's counter-tariffs on U.S. goods, which took effect earlier this month, could also add to some prices in coming months. Rising rent inflation is another trend to watch.

What it means for an ordinary Canadian household

Slower grocery inflation is good news for food budgets, but fuel and heating oil remain expensive, especially in Atlantic Canada. Households that heat with oil may want to plan for higher winter bills.

For savers, a 3% inflation rate means money in a low-interest account loses purchasing power; compare savings and GIC rates with inflation. For borrowers, core inflation near 2% makes a rate hike at the Bank's next decision on Oct. 28 less certain, but not impossible. This is general information, not personalized advice.

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