The slowing pace of decline in gasoline prices was the biggest contributor to

Canada’s inflation rate

rising to 1.9 per cent in August, Statistics Canada said Tuesday, while lower prices for travel tours and fresh fruit balanced acceleration in the all-items

consumer price index

(CPI).

Excluding food and energy, CPI rose by 2.4 per cent in August, down from 2.5 per cent in May, June and July.

Here’s what economists think about the latest inflation numbers and their impact on the

Bank of Canada

’s next

interest rate

announcement on Sept. 17.

CPI ‘didn’t matter, but didn’t hurt either’: Scotiabank

“First, ignore headline CPI,” Derek Holt, vice president and head of capital markets economics at Bank of Nova Scotia, said in a note.

He said the elimination of the consumer carbon tax earlier this year distorted the measure and will depress year-over-year headline CPI numbers until next spring, “when it should bounce higher once the data starts comparing to a year-ago starting point after April’s carbon tax change.”

Holt said August’s core inflation numbers “cemented” a rate cut by the Bank of Canada on Wednesday, but that wasn’t always the case. Until the beginning of September, markets spent the year “trapped in a cycle of pushing out cut expectations and getting disappointed in serial fashion,” he wrote.

Holt said the facts changed “relatively recently,” motivating Scotiabank to alter its long-held call that the central bank would pause rates.

“Reciprocal tariffs are gone. The U.S. job market dramatically weakened, including massive downward revisions that raise doubts about U.S. resilience and what it means to Canada’s economy. The Canadian job market suddenly began souring. GDP disappointed despite strength in the domestic economy and tracking for Q3 GDP is looking soft, which adds to modest slack,” Holt wrote.

‘No ninth-inning drama here’: BMO Economics

The latest report was “mostly a low-drama affair,” Douglas Porter, chief economist at BMO Capital Markets, said in a note, with major measures of inflation rising a “tame” 0.2 per cent or less on a seasonally adjusted basis.

“That pace won’t cause the Bank of Canada much stress, thus keeping them on track for a rate cut at tomorrow’s decision. The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line.”

Porter said gasoline costs are “less friendly” as they fell 12.7 per cent year-over-year in August compared to a 16.1 per cent drop in July, but noted that pump prices have since moved higher and will “juice” headline inflation well above two per cent next month.

Rent remains “the single biggest driver of overall inflation,” he said, although it has cooled from 5.1 per cent to 4.5 per cent year-over-year and “seems headed lower.”

On the trade war front, Porter said goods excluding energy and groceries “eased a tad” to a 1.7 per cent year-over-year pace compared to two per cent in July.

“That’s still a bit hotter than the pre-pandemic norm, but less than half the pace seen during the great inflation scare of 2022/23,” Porter wrote.

Nothing to stand in the way of rate cut: Capital Economics

“A rebound in headline inflation was always likely in August due to unfavourable base effects, with the better news that the increase to 1.9 per cent from 1.7 per cent was a little lower than the consensus estimate that it would rise to 2.0 per cent,” Stephen Brown, deputy chief North America economist at Capital Economics, said in a note.

Brown said the “good news” is that new motor vehicle prices dropped, “supporting our view that tariff effects are already fading,” and that there was little sign of material upward pressure on goods prices.

Core inflation pressures are “a bit too strong for comfort,” he said, but the “slightly firmer rise in the Bank of Canada’s preferred core price measures” won’t be enough to stop it from cutting interest rates by 25 basis points on Sept. 17.

“The Bank probably shares our view that the outlook for core inflation is no longer as concerning as it was a few months ago. Accordingly, the Bank is likely to cut interest rates tomorrow and we expect further loosening later this year.”

‘Momentum in the right direction’: TD Economics

In a note on Tuesday, Andrew Hencic, director and senior economist at TD Economics, said gasoline prices provided a “smaller drag” to headline inflation, while the slower pace of cellular services price declines was offset by a steeper contraction in travel services, with Statistics Canada citing lower demand for U.S. destinations as a contributor.

“Momentum in the right direction from inflation this month, as the expected lift from energy prices had a smaller impact than expected,” Hencic wrote. “Moreover, even though three of the core indexes moved higher on the month, the trend towards cooler prints remains favourable.”

Looking forward, Hencic said the economy’s “waning momentum” and rising unemployment rate leaves room for a Bank of Canada rate cut.

“Moreover, the termination of many retaliatory tariffs will help provide some offset to price pressures. We maintain the view that the (central bank) will have room to deliver two cuts this year to support growth and keep inflation in the target range.”

‘Rate cuts imminent’: Desjardins

“While underlying inflation proved somewhat sticky in August, the trend is undoubtedly its friend,” Randall Bartlett, deputy chief economist at Desjardins, said in a note. “With the removal of retaliatory tariffs on over $44 billion in imports from the U.S., CPI inflation is expected to gradually track lower going forward.”

Bartlett noted that Canada’s counter tariffs “continued to play a role in keeping inflation more elevated than it would be otherwise,” but their contribution to rising core non‑shelter inflation should fade faster since the federal government “significantly reduced” the levies on Sept. 1.

Desjardins now anticipates inflation in 2026 will be “consistently” below the Bank of Canada’s two per cent target.

Combined with a weak economy and labour market, Bartlett said “the case for policymakers to remain on the sidelines is an increasingly tough one to make,” and reiterated Desjardins’ position that the Bank of Canada will cut its policy rate by 25 basis points on Sept. 17 and likely issue two more cuts before the end of the year.

  • Inflation reaches 1.9% as core measures reinforce Bank of Canada rate cut expectations
  • ‘Very strong case’ for Bank of Canada cut this week, if inflation data co-operates

• Email: jswitzer@postmedia.com