September 16, 2025•
10:24 AM•
Bank of Canada
• One Comment
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Headline inflation rose 1.9% in August from a year earlier, up from 1.7% in July but still below economists’ expectations, Statistics Canada reported Tuesday. Prices slipped 0.1% from July, while core inflation edged down to 2.4% from 2.5%.
More importantly, the Bank of Canada’s preferred core measures—designed to strip out volatile components—remained elevated. CPI-trim edged down 0.1 percentage point to 3.0%, while CPI-median held at 3.1% for a third straight month.
TD Economics’ Andrew Hencic said the report showed “momentum in the right direction,” helped by a smaller-than-expected impact from higher energy prices.
BMO chief economist Douglas Porter described it as a “low-drama affair,” noting that the key inflation measures rose “a tame 0.2% m/m (or less) in seasonally adjusted terms.”
Rate cut already priced in, with future moves still in play
This morning’s CPI release was the last major data point before the Bank of Canada’s rate decision tomorrow.
Scotiabank’s Derek Holt argued there was a “very high bar” for the CPI release to matter, however, adding that it shouldn’t. He said the Bank’s decision-making is already well advanced and that core gauges such as CPI-trim and CPI-median remain its key guideposts. The central bank, he added, is focused more on forward-looking risks and trends than on a single month’s data.
Economists generally saw the dip in core inflation as a secondary factor, but agreed the Bank of Canada is set to cut rates tomorrow given the broader economic backdrop.
Hencic said the Bank has “room to cut at its meeting tomorrow,” citing rising unemployment and job losses. Porter also said the BoC is “on track for a rate cut at tomorrow’s decision,” though he noted that trends in core inflation will help shape the discussion around additional moves.
“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 wrote. “However, we suspect the Bank will continue to take it one step at a time, restrained by the 3% y/y trends in some core measures, as well as the likelihood that headline inflation will pop, at last [sic] temporarily, in next month’s report.”
While most economists expect a 25-basis-point cut tomorrow, CIBC’s Andrew Grantham goes further, forecasting another cut at the October meeting. He pointed to mounting economic slack and the potential for weaker prices following the lifting of retaliatory tariffs earlier this month, adding that core inflation should continue to cool in the months ahead.
Bond markets took the data largely in stride. Five-year Government of Canada yields briefly spiked to 2.7% after the release before easing back to 2.67%, little changed from the open.
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Last modified: September 16, 2025