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Canada’s annual inflation rate rose to 1.9% in August from 1.7% in July, coming in slightly cooler than the 2.0% economists were expecting ahead of the Bank of Canada’s (BOC) rate decision on Wednesday.

The uptick was largely driven by gasoline prices falling less dramatically than in previous months, down 12.7% year-over-year compared to July’s 16.1% decline. The smaller decline reflects fading base effects from April’s carbon tax removal.

Meanwhile, core inflation measures remained stubbornly elevated around the 3% mark, with CPI-median holding at 3.1% and CPI-trim dipping slightly to 3.0% – still well above the BOC’s comfort zone.

Key Points from Canada’s August 2025 CPI Data:

  • Headline CPI rose to 1.9% y/y (from 1.7%), missing the 2.0% consensus
  • Core inflation stuck near 3% with a median of 3.1%, trim at 3.0%
  • Gasoline prices fell 12.7% y/y as carbon tax base effects fade
  • Meat prices surged 7.2%, driving grocery inflation to 3.4%
  • 39% of CPI basket running above 3%, up from 37% in July
  • Markets are pricing in 87% odds of a Wednesday rate cut

Link to Statistics Canada August 2025 CPI Report

With underlying price pressures still running hot, traders kept their rate cut expectations in check. Markets are pricing a 25bp cut on Wednesday while dialing back hopes for aggressive easing down the road.

Market Reactions

Canadian Dollar vs. Major Currencies: 5-min

Canadian Dollar Slid Despite Sticky Core Inflation as Traders Eyed BOC and FOMC Decisions

Overlay of CAD vs. Major Currencies Chart by TradingView

The Canadian dollar, which ticked higher just before the U.S. session opened, weakened across the board at the CPI release. Traders didn’t like the headline miss, and CAD sank for about an hour while traders chewed on the data.

The Loonie caught a quick breather mid-morning, only to get knocked down again after London went home for the day. That second wave of selling pushed CAD deeper into the red against most of the majors.

Late in the day, though, a bit of short covering showed up. With the Fed’s decision looming on Wednesday, traders likely squared positions and helped CAD claw back some ground, especially against the commodity currencies.

By day’s end, the Loonie finished mixed, gaining against the Aussie, Kiwi, and the Greenback, but closing in the red against safe havens CHF and JPY and European currencies EUR and GBP.

The persistent CAD weakness despite sticky core inflation near 3% suggested markets were more focused on the headline miss and the likelihood of a BOC cut on Wednesday. The upcoming FOMC decision also kept traders cautious, with many opting for the safety of havens and euros over the commodity-linked Loonie.