Canada’s Inflation Slows to 1.9% in August, Boosting Odds of Rate Cut

Canada’s inflation cooled somewhat in August, giving the Bank of Canada more room to consider cutting interest rates. Below is what you need to know, especially if you have or are looking for a mortgage.

Key Figures & What Changed

• Headline inflation rose by 1.9% year-over-year in August, up from 1.7% in July, but still slightly below economists’ expectations of around 2.0%.
• On a monthly basis, the Consumer Price Index (CPI) fell 0.1%, surprising analysts who had predicted at least a small increase.
• Looking at core inflation — which excludes volatile items like energy and food — there was modest easing:
  • CPI-trim: about 3.0% year-over-year, slightly down from previous months.
  • CPI-median: held at 3.1%.
• Some components continued to push inflation higher:
  • Food prices rose about 3.4% year-over-year, with meat prices up ~7.2%.
  • Shelter costs increased 2.6% annually, marginally lower than in July.

Implications for the Bank of Canada & Interest Rates

• The weaker-than-expected inflation reading strengthens the case for the Bank of Canada (BoC) to reduce its benchmark overnight rate by 25 basis points at its upcoming meeting (September 17, 2025).
• Markets are essentially pricing in a almost certain rate cut tomorrow.
• However, core inflation remains stickily elevated (near or above 3%), which means BoC will likely proceed cautiously. Future rate cuts may depend on whether core inflation continues to decline.

What This Means for Mortgage-Holders & Buyers

• Variable-rate mortgages: These are likely to become more attractive. If the BoC cuts, variable rates typically fall more directly in response to lower overnight rates. If you’re on a variable rate or considering switching, this could be a good time to evaluate your options.
• Fixed-rate mortgages / renewals: Fixed rates depend largely on longer-term bond yields and expectations of future rate cuts. With inflation easing and cuts expected, fixed-rate offers may soften, though improvements won’t necessarily be immediate or large.
• Refinancing or locking in: If you have a fixed rate that is set to expire soon, you might weigh locking in at present rates versus waiting for lower rates (but with the risk rates may not fall as much or quickly as hoped owing to core inflation).
• Home buyers: Lower borrowing costs could marginally improve affordability, though house prices and supply remain bigger constraints. Also, monthly payments on newly purchased homes will benefit if rates fall.

Risks & What to Watch Next

• Core inflation measures are still well above the BoC’s target, especially in sectors like shelter; if they don’t come down, the BoC may delay or limit future cuts.
• Food price volatility, energy shocks, or external trade/tariff developments could reaccelerate inflation unexpectedly.
• Economic data in other areas (like labour market, GDP growth) will influence decisions. A weakening economy gives more leeway to cut, but erratic data could complicate the outlook.
• Watch upcoming CPI and core inflation releases, shelter inflation, and statements from BoC officials for signals.

Canada’s inflation in August is cooling — not collapsing. The headline number at 1.9% and a small monthly drop in CPI suggest the worst of inflation pressures may be easing. For mortgages, this makes rate cuts likely, especially for variable rates and those renewing soon. However, elevated core inflation means any easing will likely be gradual.