Major bank economists weigh in on what August's CPI means for Canadian borrowers
Canada's mortgage rate outlook is unchanged after Statistics Canada reported the consumer price index (CPI) rose 3% year-over-year in August, matching July's reading and giving the Bank of Canada (BoC) little reason to alter its current hold.
Gasoline prices remained 23% above year-ago levels despite edging lower from July. Food prices eased to 2.8% year-over-year, the lowest since late 2024.
More consequential for policymakers, the BoC's preferred core measures — CPI-trim and CPI-median — held close to the 2% target, and measures of inflation breadth remained contained.
Energy costs have yet to spread
Abbey Xu, economist at Royal Bank of Canada in Toronto, said the data aligned with the bank's base case.
"Underlying inflation pressures remained comparatively contained," she said.
"There continued to be limited evidence that elevated energy costs were generating significant second-round inflation."
Price growth remained high in energy-intensive sectors such as air travel, but had not spread materially across the consumer basket.
RBC expects the BoC to hold through the remainder of 2026 before moving rates higher in 2027. Xu added that risks are shifting.
"Risks around that forecast are increasingly tilted toward an earlier hike, particularly if elevated energy prices persist while the economy and labour market continue to recover," she said.
The latest Bloomberg Nanos Canadian Confidence Index from Nanos Research shows Canadians remain relatively confident about their jobs and finances, but less optimistic about housing and the economy.https://t.co/qYxJN788Vh
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 10, 2026
Bond markets may have moved too far
Leslie Preston, managing director and senior economist at TD Economics in Toronto, pointed to a notable disconnect between market pricing and the underlying print.
Before August's release, the two-year Government of Canada bond yield had risen more than 40 basis points over the prior month as traders priced in rate increases.
"We don't think today's inflation report supports this degree of tightening," Preston said.
Core inflation was moving higher, she added, "but off a very low level, and is expected to remain within the BoC's comfort zone" — particularly as US tariffs continue to drag on Canadian growth.
Andrew Grantham of CIBC Economics in Toronto agreed, noting that with the next BoC meeting more than a month away and another CPI report still to come, there was no basis for firm policy signals.
"We still expect that the Bank will keep interest rates on hold, particularly if tariff and trade uncertainty is still clouding the economic outlook, with recent evidence suggesting that economic growth was slowing again even prior to the recent escalation in trade uncertainty and with core measures of inflation still fairly muted," Grantham said.
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