Inflation holds steady at 3% in August despite high energy prices

Inflation is holding steady as summer comes to a close. Oil prices were relatively stable in August, while pressure from food prices eased somewhat. Most measures that look beyond the more volatile parts of inflation were also steady. Some of the upward movement in August came from services, particularly travel related categories, where base effects played a role.

Overall, inflation remains fairly contained. That leaves the Bank of Canada in a good position to continue holding rates steady while remaining watchful for renewed price pressures. Gasoline prices remain the biggest risk to pushing overall inflation higher over the next few months.

Overview

Headline inflation held steady at 3.0% in August, leaving it at the top of the Bank of Canada’s target range. Prices fell 0.1% from July, although they increased 0.2% on a seasonally adjusted basis. Five of the eight major CPI components recorded slower annual price growth, suggesting inflationary pressures are not becoming more widespread.

Energy remains the main source of inflation. Gasoline prices were up 22.8% from a year ago, reflecting the continuing conflict in the Middle East, although that was slower than July’s 25.7% increase. Excluding gasoline, inflation rose from 2.2% to 2.4%. Travel-tour prices also increased sharply, largely because of base-year effects and new fuel surcharges, while rent inflation accelerated to 2.8%.

There was some welcome relief at the grocery store. Food purchased from stores increased 2.8%—below headline inflation for the first time since July 2024—as dairy, pork and several other food categories recorded slower price growth. Still, grocery prices remain 29% higher than five years ago, which helps explain why many Canadians do not feel inflation has returned to normal.

For the Bank of Canada, the report supports patience. Its preferred measures of core inflation remain close to 2%, indicating that higher energy prices have not yet produced broad-based inflation. With trade uncertainty continuing to cloud the growth outlook, the Bank should keep rates on hold while watching closely for signs that energy and tariff-related costs are spreading through the economy.