Canada’s Inflation Holds at 3% as Energy Prices Surge

Canada’s inflation rate remained unchanged in August, but a sharp increase in energy prices in September could put renewed pressure on consumers and the economy. With crude oil, gasoline and diesel prices all climbing, Canadians could soon feel the impact through higher transportation and everyday costs. The increase in energy prices could also make it more difficult for the Bank of Canada to bring inflation back to its two-percent target.

What Is Canada’s Inflation Rate?

Canada’s inflation rate held at three percent in August, the same rate as July, as crude oil and food prices cooled moderately. Gas prices were up in 22.8% in August, a little lower than the 25.7% pace a month earlier. If you take volatile gasoline prices out of the mix, consumer prices were up 2.4% in August.

Grocery prices continued to rise but at a marginally slower pace than overall inflation, climbing 2.8% on an annual basis. Dairy products were up 0.7% in August compared to a 3.1% increase in July.

While higher energy prices didn’t make their way through the broader economy in August, chances are good that surging energy prices in September will juice inflation above three percent.

The price of West Texas Intermediate (the North American benchmark) has been ripping higher in September, from US$86.00 per barrel at the start of the month to US$103.00 per barrel by the middle of the month. Over the same time frame, Brent crude (the global benchmark) has experienced an even bigger gain, rising from US$92.00 to US$109.00 per barrel.

Crude oil prices are significantly higher than where they were a year ago due to the ongoing war in Iran and conflict in the Strait of Hormuz. The average price for gasoline is $1.79 per litre, up from $1.67 a month ago and just $1.38 a year ago. Higher gas prices cut into the budget of the average Canadian. It’s easier to cut back on groceries and other essentials than it is to cut back on driving.

Higher crude oil prices have also sent the cost of diesel fuel soaring. Diesel prices are sitting at $2.62 per litre, more than a dollar higher than they were a year ago. The price of diesel fuel has a direct impact on Canadian consumers. Roughly 90% of all consumer goods and food items in Canada are hauled by trucks. Diesel is one of the biggest costs for logistics companies, and that cost gets passed on to consumers.

Which Is Worse for the Canadian Economy: Higher Energy Prices or a Trade War with the U.S.?

The Bank of Canada has said that higher energy prices will have a greater impact on the Canadian economy than the ongoing tariff war with the U.S. The longer energy prices remain elevated, the greater the risk that they will energize inflation.

The Bank of Canada’s goal is to keep inflation at two percent. To keep inflation at this level, the central bank adjusts its interest-rate policy. Increasing interest rates makes borrowing more expensive and helps cool the economy. Lower rates boost borrowing, spending, and economic growth.

Right now, the central bank needs to juggle bringing down inflation, which is being impacted by higher energy prices, with efforts not to hinder the economy, which continues to face headwinds from U.S. tariffs.

The Bank of Canada has held interest rates at 2.25% since October 2025. Some economists believe the central bank will hold rates at this level for the remainder of 2026 before slowly increasing them in 2027. Others believe the ongoing conflict in the Middle East will force the Bank of Canada to raise interest rates before the end of the year, with at least two additional hikes in 2027.

The central bank meets next on October 28 and again on December 9.

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