Canada: Contained inflation pressures support steady BoC – RBC

Royal Bank of Canada (RBC) economist Abbey Xu notes that Canadian inflation stayed at 3% year-over-year in August, with Food and energy components still elevated but easing somewhat. Core measures such as Consumer Price Index (CPI) excluding food and energy and the Bank of Canada’s (BoC) CPI-trim and CPI-median remain near the 2% target. Xu argues this supports the base case that the Bank of Canada keeps rates unchanged through 2026 before gradual hikes in 2027, though persistent Oil strength could tilt risks toward earlier tightening.

Inflation and rate outlook in focus

"Canadian inflation held at 3% year-over-year in August, unchanged from July."

"Underlying inflation pressures remained comparatively contained."

"There continued to be limited evidence that elevated energy costs were generating significant second-round inflation."

"The risk of greater pass-through will rise the longer oil prices remain elevated, making the breadth and persistence of underlying price pressures more important than month-to-month movements in headline inflation."

"The August report was broadly consistent with our base case that the Bank of Canada will hold interest rates through the remainder of 2026 before gradually raising rates in 2027 as the economy strengthens."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)