By Craig Lord
Many customers are nonetheless reeling from the decades-high inflation ranges seen within the post-pandemic restoration interval, when costs for housing, gasoline and groceries all surged.
However the elements shaping inflation right this moment are completely different from those in play when the lockdowns ended, and MPs and the Financial institution of Canada are actually grappling with the impression of tariffs, taxes and authorities spending on the price of residing.
Right here’s what you should know concerning the state of inflation in Canada.
The place does inflation stand right this moment?
Statistics Canada says the annual price of inflation got here in at 1.9% in August, up from 1.7% in July.
The Financial institution of Canada is chargeable for sustaining value stability in Canada and units a goal of two per cent for annual inflation.
“I imply, 1.9% is definitely fairly good,” mentioned Mostafa Askari, chief economist on the Institute of Fiscal Research and Democracy and the College of Ottawa.
Askari mentioned a short month-to-month enhance in inflation isn’t a lot to fret about by itself.
He mentioned policy-makers ought to watch tendencies over six months or longer earlier than reacting to motion in value figures.
What’s driving inflation?
Randall Bartlett, deputy chief economist at Desjardins, mentioned the massive issue easing inflation proper now’s the termination of the buyer carbon value.
As a result of the carbon levy was in place for customers in 2024, the Liberals’ transfer to finish the coverage in April has meant decrease costs on the fuel pumps in latest months, skewing information within the year-over-year comparisons.
Shelter inflation can be diminishing because the tempo of inhabitants development slows, easing competitors for flats and lowering hire costs in lots of cities.
Canadians searching for a brand new mortgage right this moment are additionally seeing charges nearer to 4 per cent on a five-year fastened mortgage. Charges had been effectively over 5 per cent this time final yr.
One space the place customers are nonetheless feeling the pinch is meals inflation, which StatCan pegged at 3.4% in August. That price continues to be effectively beneath the double-digit yearly positive aspects seen through the peak of the inflationary interval of some years in the past.
Askari mentioned customers are feeling the cumulative impression of years of inflation pushing costs greater, notably on the grocery retailer.
Costs are inclined to rise shortly on the way in which up however are “sticky” on the way in which down, in the event that they ease in any respect, he mentioned.
Are counter tariffs pushing costs greater?
One other drive affecting grocery inflation is Canada’s retaliatory tariffs in opposition to the US.
Some counter tariffs — that are paid by Canadian companies importing U.S. items — had been imposed on inputs for manufactured merchandise and are baked into the ultimate price of or absorbed into an organization’s margins.
These prices present up extra readily in perishable items purchased on the grocery retailer, like Florida orange juice. However recent meals costs are additionally susceptible to shifts in climate and rising circumstances around the globe.
Askari mentioned this makes it tough to say with absolute certainty how a lot value hikes are tied to tariff impacts.
Canada dropped most of its retaliatory tariffs on the US firstly of the month.
Mixed with the elimination of the buyer carbon value, Bartlett expects the tip of counter tariffs will go away headline inflation a full proportion level decrease in 2026 than it will have been with these two insurance policies in place.
However he additionally expects earlier impacts from counter tariffs will persist within the inflation readings for September and step by step fade by the remainder of the yr.
What about authorities spending?
Conservative Chief Pierre Poilievre has accused the federal authorities of working deficits that gasoline inflation.
“Deficits drive up inflation, grocery costs, housing prices and rates of interest,” he mentioned in query interval on Sept. 17.
Specialists say the impression of federal spending on inflation is much less clear than that.
Askari mentioned that when authorities spending ends in more cash within the pockets of Canadians or companies, it drives up spending demand within the economic system. Extra demand, with out an related increase in provide, can drive up inflation.
When authorities spending is aimed toward growing provide, nonetheless — by increasing the inventory of housing, for instance — that may take strain out of inflation, Askari mentioned.
“In precept, deficit spending may put strain on costs. Calling each authorities spending inflationary isn’t appropriate,” he mentioned.
Canada’s economic system contracted within the second quarter, and most economists anticipate a modest restoration to start out within the third quarter.
Bartlett mentioned this displays an economic system that’s working beneath its potential — there’s slack within the economic system, in different phrases — so a little bit of fiscal stimulus may “shore up” the economic system with out triggering a pointy spike in inflation.
There are limits, nonetheless. Bartlett mentioned the dimensions of the deficit the federal Liberals have telegraphed is coming within the upcoming fall funds could, in actual fact, be greater than warranted, given the state of the economic system.
Ottawa’s deliberate capital investments might be inflationary within the near-term in the event that they result in a surge in demand for development labour and supplies, Bartlett mentioned.
However those self same spending plans may take steam out of inflation sooner or later if they assist to spice up productiveness within the economic system within the medium or long term, he added.
“The proof within the pudding goes to be within the tasting, by way of how efficient this infrastructure funding is,” Bartlett mentioned.
In the meantime, plans to scale back federal working spending by as a lot as 15% over three years can be disinflationary if they arrive to cross, he mentioned.
What’s taking place to rates of interest?
The Financial institution of Canada has been watching inflation fastidiously this yr, ready to see how the U.S. tariff dispute will have an effect on costs and the economic system.
Whereas the central financial institution signalled there’s nonetheless loads of uncertainty on the commerce entrance, financial policy-makers lower the benchmark rate of interest by 1 / 4 level to 2.5% final week.
Financial institution of Canada Governor Tiff Macklem mentioned the steadiness of dangers had shifted towards a weakening economic system and away from rising costs.
“In the event that they thought there can be a threat (of inflation), they might not have finished that,” Askari mentioned of the speed lower.
The Financial institution of Canada has not baked the federal authorities’s latest spending bulletins into its forecasts.
Macklem mentioned the central financial institution will accomplish that as soon as these spending plans are printed within the federal funds, set for Nov. 4 — roughly every week after the Financial institution of Canada’s subsequent rate of interest announcement.
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Final modified: September 26, 2025
