Canadian consumer prices rose 3.0% in August from a year earlier, unchanged from July and at the ceiling of the Bank of Canada 1% to 3% control range, Statistics Canada reported on September 14. The measures the Bank prefers told a different story: the average of CPI-trim and CPI-median was 2.0%, unchanged from July, according to TD Economics. The distance between those two numbers is one full percentage point, and almost all of it is energy.
Money markets are pricing the headline, not the core. The Bank held its policy rate at 2.25% on September 2 for a seventh consecutive decision, and markets carry a partial hike for December and roughly 100 basis points of increases over the next 12 months, according to nesto.ca. Most bank economists expect the rate to stay frozen through 2026 and to rise first in 2027.
What the Core Measures Are Actually Saying
Gasoline prices were 22.8% higher than a year earlier in August, down from 25.7% in July, according to TD Economics. That single component lifts the headline while the rest of the basket behaves. Shelter inflation was 1.5%, up from 1.3%, with rents rising 2.8% after 2.5% in July, and grocery prices rose 2.8% after 3.1%, the first reading below headline inflation in nearly two years.
Headline inflation has moved from 1.7% in July 2025 to 3.0% in August 2026, with a peak of 3.2% in May, and the series crossed the 3% line only after the Middle East war began in late February. The figures below show that path against the 2% target and the last Bank rate cut.
Values are rounded to one decimal. The top of the range is the upper limit of the Bank of Canada 1% to 3% inflation control range, and the last policy rate cut took the rate to 2.25%.
Why the Bond Market Is Pricing a Different Bank of Canada
The Federal Reserve raised its target range to 3.75% to 4.00% on September 16, its first increase since 2023, and the U.S. 10-year Treasury yield reached 5.234% on Monday, according to CNBC. The Government of Canada 10-year yield was 3.94% on Tuesday against 5.22% for the U.S. benchmark, according to Trading Economics, a gap of about 129 basis points. Canadian yields tend to follow U.S. yields when the U.S. moves first, which is why they can rise without Canadian data justifying it.
The transmission runs to mortgages. The 5-year Government of Canada yield rose about a quarter of a percentage point in the week to September 11, and lenders raised fixed mortgage rates by 20 basis points to nearly 100 basis points, according to Canadian Mortgage Trends. Borrowers renewing five-year fixed terms face those quotes, while the policy rate that drives variable-rate products and prime, at 4.45%, has not moved.
The October 28 Decision Carries Both Risks
Second-quarter GDP grew at a 3.3% annualized rate, according to Statistics Canada, which reduces the case for further easing. The Bank July forecast still projected growth of 0.7% for 2026, according to nesto.ca, so the economy and the forecast are not telling the same story either. Marc Ercolao of TD Economics expects the Bank to hold through the rest of the year, and Leslie Preston of TD wrote that current data does not support aggressive hikes.
The Bank publishes its next Monetary Policy Report on October 28, the same day the Federal Reserve is priced to decide, and releases its Business Outlook Survey on October 19. The Bank has said it is prepared to adjust policy as needed and that upside risks to inflation have increased. The question the October report answers is whether the energy shock has begun to reach the core measures, which are the only data that would move the Bank ahead of the bond market.