August CPI: Inflation Held at 3%, Core Sat at Target, and Markets Still Price an October Hike
The two inflation measures the Bank of Canada says it trusts most spent August at or below the 2% target. The market that bets on the Bank’s next move spent this week pricing a rate hike anyway. That tension, not the headline number, is the real story of the August Consumer Price Index, because the headline number did nothing at all: inflation held at 3.0% year over year, unchanged from July, according to Statistics Canada’s release of September 14. Prices fell 0.1% on the month before seasonal adjustment and rose 0.2% with it.
We previewed this report on September 12 with markets leaning toward an October hike. The report has now landed, and the case for that hike did not get simpler. It split in two.
Gasoline is doing almost all of the work
Strip out one product and the inflation picture changes completely. Gasoline prices were up 22.8% year over year in August, easing only slightly from 25.7% in July, as Statistics Canada noted that pump prices remained elevated with the conflict in the Middle East continuing through the month. Excluding gasoline, inflation was 2.4%.
That 2.4% is worth a moment of honesty in both directions. It is far below the 3.0% headline, which says the top-line number overstates the breadth of inflation. But it also rose from 2.2% in July, so the non-gasoline price level is not softening either. Elsewhere in the basket, travel tours were up 26.1% year over year, transportation up 7.5% (mostly the gasoline effect again), shelter up a modest 1.5%, and clothing and footwear down 1.1%. All figures are for the August 2026 reference month.
The Bank’s own yardsticks sat still, at target
The Bank of Canada has said for years that it looks past the headline to its preferred core measures, CPI-trim and CPI-median, which strip out the most extreme price swings in the basket. Precisely the swings, in other words, that a 22.8% gasoline move represents. In August, CPI-trim ran at 1.9% and CPI-median at 2.0%. One is below the 2% midpoint of the Bank’s target range, the other is exactly on it, and neither has moved meaningfully in three months.
| Measure, year over year | June | July | August |
|---|---|---|---|
| Headline CPI | 2.8% | 3.0% | 3.0% |
| CPI excluding gasoline | n/a | 2.2% | 2.4% |
| CPI-trim | 1.9% | 1.9% | 1.9% |
| CPI-median | 1.9% | 2.0% | 2.0% |
Figures from Statistics Canada: the September 14 Daily release and StatCan’s published core-measure series, as of the August 2026 reference month.
Canada’s headline CPI against the Bank of Canada’s preferred core measures, CPI-trim and CPI-median. Source: Statistics Canada.
On these measures alone, underlying inflation is at target and has been all summer. A central bank that believed only its own preferred gauges would be debating nothing in October.
The market is pricing a hike anyway
It is not debating nothing. As of the September 17 settlement, Montreal Exchange one-month CORRA futures price a 54% chance that the Bank of Canada raises its policy rate, currently 2.25%, at the October 28 decision. The implied rate sits at 2.39%, meaning roughly 14 of the 25 basis points of a hike are already in the price. That is a coin flip leaning toward tightening, against core measures that say tightening is unnecessary.
The market is not pricing this in a vacuum. The US Federal Reserve raised its target range to 3.75% to 4.00% on September 16, a move we covered as Canadian markets traded through it, and a widening gap between US and Canadian rates puts steady pressure on the Canadian dollar. A weaker dollar makes imports dearer, which feeds the very headline number sitting at 3.0%.
What each side needs to be true
For the market’s hike call to be right, the Bank has to be watching the headline and what it does to expectations, not just trim and median. There is a case. Headline inflation is pinned at 3.0%, the very top of the Bank’s 1% to 3% control range, and it has been there for two straight months. Inflation excluding gasoline ticked up, not down. Gasoline at these levels flows through to delivery costs, airfares and food over time. And with the Fed at 4%, standing still has a currency cost that a small open economy cannot ignore forever. On this reading, a hike is insurance against 3% becoming the number households plan around.
For a hold to be right, the Bank simply has to do what it has told Canadians it does: look through supply shocks it cannot control and steer by the underlying trend. Monetary policy cannot produce oil or end a war, and raising the cost of every mortgage renewal in Canada because of a geopolitical fuel spike would punish domestic demand that is not the problem. Trim at 1.9% and median at 2.0%, stable for three months, is close to a textbook picture of inflation at target. On this reading, the market has confused a relative-price shock with an inflation trend.
Both readings fit the same data, which is why the futures market has settled at 54% rather than 90%. We are not going to pretend the evidence resolves further than that, and neither should anyone else this far from the decision.
What settles it
One more inflation report lands before the Bank decides: September CPI arrives on Monday, October 19, nine days ahead of the October 28 announcement, per Statistics Canada’s own release schedule. If gasoline’s contribution fades and headline drifts back toward core, the hike case loses its anchor. If headline holds at 3% while ex-gasoline inflation keeps firming, the insurance argument gets stronger. Until then, the honest summary of August is this: the measures the Bank says it steers by sat at target, and the market priced a hike anyway. October 19 tells us which one blinks.
CPI figures are for the August 2026 reference month; rate pricing is as of the September 17, 2026 futures settlement.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. CPI figures from Statistics Canada’s Daily release of September 14, 2026 (dq260914a) and StatCan WDS core-measure vectors, for the August 2026 reference month. Rate pricing derived from Montreal Exchange one-month CORRA futures settlements as of September 17, 2026.
