August 2025 CPI: Headline inflation rises, but under the hood is all good.

“August’s rise in inflation wasn’t a surprise, though we would’ve preferred to see more progress on core prices. With most retaliatory tariffs now removed and the risks to inflation easing, the Bank of Canada should now shift to risk-mitigation mode and focus on growth. Today’s print is broadly on target, and what the economy needs now is support. We continue to expect a 25-basis-point rate cut tomorrow.”

Summary

• Canada’s inflation rose from 1.7% in July to 1.9% in August (compared to the consensus of 2%) , as gasoline prices decreased less than last month. CPI excluding gasoline rose 2.4% compared to 2.5% in July on an annual basis. Monthly inflation rose 0.2% on a seasonally adjusted basis.
• Core inflation held steady in August at 3.1%, but monthly momentum is suggesting a weaker growth of 2.5%. Monthly price dynamics support these trends as gasoline prices remain stable.

CPI Breakdown

• Some inflation categories were driven by base-year effects due to prices falling in August 2024. Gasoline prices were most affected, which fell once again by 12.7% year-over-year, to a lesser extent than July (-16.1%). Air transportation prices fell 7.6%, but less than -10.6% in July.
• Shelter and food prices moved in opposite directions. Shelter inflation improved as rent and mortgage costs moderated in August. Food prices rose 3.4%, retreating some progress earlier this year.
• Goods prices increased further in August, by 0.7% year-over-year. This continues to be driven by durable and semi-durable goods. However, Canada’s removal of U.S. counter tariffs should help contain momentum in these prices. Services inflation held at 2.8% as travel prices weakened.

Provincial Trends

• Inflation increased in all provinces expect Prince Edward Island and Newfoundland and Labrador.

Implications

• The stabilization of core inflation and the slight improvement in the breadth of inflation are positive signs that underlying price pressure is controlled. The Canadian government’s removal of counter tariffs in addition to slack building in the economy, should give additional comfort to the Bank of Canada to lower rates. We continue to believe that they’ll cut rates by 25 basis points tomorrow, which is now fully priced in by markets.

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab