Bond yields hit a two-year high and lenders repriced fixed mortgages within days
Canada's annual inflation rate held at 3.0 percent in August 2026, unchanged from July, as slower growth in gasoline prices was offset by higher costs for travel tours and rent.
Consumer prices fell 0.1 percent month over month and rose 0.2 percent on a seasonally adjusted basis.
Gasoline prices rose 22.8 percent year over year in August, down from 25.7 percent in July.
Travel tour prices rose 26.1 percent, up from 15.2 percent, partly on a base-year effect after Canadian travel to the United States declined sharply in 2025.
Rent rose 2.8 percent nationally, compared with 2.5 percent in July, driven by Manitoba at 4.3 percent and Ontario at 2.4 percent.
Excluding gasoline, the CPI rose 2.4 percent after 2.2 percent in July.
CPI-median stood at 2.0 percent and CPI-trim at 1.9 percent, both unchanged from July, Reuters reported.
Grocery prices rose 2.8 percent, running below the all-items CPI for the first time since July 2024, according to Statistics Canada's August 2026 CPI release.
Benjamin Reitzes, an economist at Bank of Montreal, wrote in a research note carried by CBC News that gasoline "is on pace to rise at least five per cent in September which, if realized, would likely mean an acceleration in headline CPI."
He added that with diesel in particular surging, "food will likely face upward pressure in the coming months."
RBC economist Abbey Xu said price growth "remained high for energy-intensive categories such as air travel" but had not spread across the broader consumer basket.
The risk of greater pass-through rises the longer oil prices stay elevated, she said in research published Monday and reported by CBC News.
Andrew DiCapua, principal economist at the Business Data Lab and the Canadian Chamber of Commerce, said in commentary sent to Wealth Professional that "Gasoline prices remain the biggest risk to pushing overall inflation higher over the next few months," echoing his earlier read on July's three percent inflation.
Clay Jarvis, NerdWallet Canada's financial expert, said in commentary sent to Wealth Professional that "persistently high gas prices have yet to infect the wider economy," and expects September's reading to be more volatile.
The Canadian five-year rate rose 16 basis points last week to a two-year high of 3.65 percent, according to National Bank of Canada economists Daren King and Kyle Dahms, cited by the Financial Post.
That yield benchmarks five-year fixed mortgage rates, which have already jumped once during the Middle East conflict.
"We've seen increases anywhere from like 20 basis points to almost 100 basis points with some lenders," Clinton Wilkins of Clinton Wilkins Mortgage Team told Canadian Mortgage Trends. "The pricing seems to be all over the place."
In the United States, the 10-year Treasury yield reached 5.014 percent on Monday, its highest since October 2023, before easing to 4.987 percent, CNBC reported.
CNN reported the level had otherwise not been seen since 2007.
The Canadian dollar traded down 0.29 percent at 71.90 US cents, and two-year Government of Canada yields firmed 1.4 basis points to 2.703 percent, per Reuters.
Markets price a 50/50 chance of a Bank of Canada hike in October 2026 and more than 100 basis points of hikes by the end of 2027, according to BMO Capital Markets chief economist Douglas Porter, cited by the Financial Post.
Reitzes and Xu both said the August data reinforces their expectation that the central bank stays on hold, following the Bank of Canada's September 2026 decision to hold.
"[There's] nothing here to push the BoC closer to a rate hike, which should tame market speculation around a potential move in October," Reitzes wrote.
