Canadian consumer prices rose 3.0% in August from a year earlier, the second month in a row at that level and the ceiling of the Bank of Canada 1% to 3% control range. Gross domestic product was flat in July, with an advance estimate of 0.2% growth for August. Inflation at the top of the range and growth near zero is the combination the Bank must weigh when it announces its next decision on October 28.
Energy Is Doing the Work
Gasoline prices were 22.8% higher than a year earlier in August, easing from 25.7% in July. Excluding gasoline, consumer prices rose 2.4%, up from 2.2% in July. The two core measures the Bank watches most closely were little changed, at 1.9% for CPI-trim and 2.0% for CPI-median. Grocery inflation of 2.8% fell below the headline rate for the first time since July 2024, according to the August release.
Prices fell 0.1% on the month before seasonal adjustment and rose 0.2% after it. The path of the headline is therefore set mostly by one component. Statistics Canada attributes the gasoline increase to the conflict in the Middle East, including the blockade of the Strait of Hormuz.
Headline inflation has risen from a low of 1.8% in February, the month the US-Iran war began, to 3.0% in August, which puts it at the top of the control range while the core measures sit at the 2% target.
The Bank of Canada manages policy to a 2% inflation target within a 1% to 3% control range. August 2026 core measures were 1.9% (CPI-trim) and 2.0% (CPI-median).
Growth Offers Less Cover
Real GDP was unchanged in July, with manufacturing down 0.9%, mining, oil and gas down 0.5% and retail down 1.0%, and Statistics Canada flagged an advance estimate of 0.2% growth for August. The weakness follows a second quarter that grew at an annualized 3.3%, so the flat month lands after a strong stretch rather than within a downturn.
The mix matters for policy. An energy price shock raises headline inflation and drains household purchasing power at the same time, which pushes the two sides of the Bank mandate in opposite directions. A central bank can look through a one-time rise in the price level, but only while the core measures stay near target and wage and price expectations hold.
The October 28 Decision
The policy rate has been 2.25% since October 29, 2025, and the Bank has held at every decision since. The Federal Reserve raised its range by 25 basis points to 3.75% to 4.00% on September 16, which leaves the Canadian policy rate 1.50 to 1.75 percentage points below the American range. The Government of Canada 10-year yield was 3.87% on September 18, up from a 52-week low of 3.04%, and fixed mortgage rates have followed bond yields higher without any move in the policy rate.
Governor Tiff Macklem said in a September 21 speech that the Bank does not want to be too slow to respond if inflationary pressures are becoming more persistent. Markets price at least one hike before the end of the year, while TD Economics expects the Bank to stay on hold through the rest of 2026.
What Would Change the Call
The base case is a hold on October 28, with the Monetary Policy Report carrying the new forecast. The September CPI release on October 19 is the data point that can move it. If the core measures stay near 2%, the energy shock remains a level shift in the headline that the Bank can look through. If CPI-trim or CPI-median moves toward 2.5%, the shock is spreading into underlying prices, and the argument for the first hike since the 2022 and 2023 cycle gets stronger.