Canada Inflation Report – August 2025

Headline Figures

• Annual CPI: Rose 1.9%, slightly below forecasts of 2.0%, but higher than July’s 1.7%.
• Monthly CPI: Fell 0.1%, versus expectations of a 0.1% rise.
• Core Inflation:
  • CPI-median held steady at 3.1%.
  • CPI-trim eased to 3.0% from 3.1%.
  • Excluding gasoline, CPI slowed to 2.4% from 2.5% in the prior three months.
• Gasoline Prices: +1.4% month-on-month, but still down 12.7% YoY (vs. -16.1% in July).
• Shelter Costs: +2.6% YoY (down from 3%), as rent and mortgage costs eased.
• Food Prices: +3.4% YoY, with meat prices surging 7.2% after July’s +4.7%.

Market & Policy Implications

• Bank of Canada (BoC):
  • With inflation moderating below expectations, the case for a rate cut at the September 17 meeting is stronger.
  • Money markets now price a 93% chance of a 25 bps cut.
  • Benchmark policy rate is currently at 2.75%, unchanged since March.
• Canadian Dollar & Bonds:
  • CAD firmed slightly to 1.3761 per USD (≈72.67 U.S. cents).
  • 2-year bond yields edged up to 2.507%, reflecting cautious optimism.

While headline inflation ticked up, the softer monthly print and easing core measures indicate underlying disinflationary pressures, giving the BoC space to restart its easing cycle. However, sticky food inflation and resilient portions of the CPI basket above 3% suggest that underlying price pressures haven’t fully dissipated, meaning the bank may remain cautious about the pace of cuts.