Inflation Ticks Higher But Falls Short of Expectations, Opening Door for Bank of Canada Cut, Says TD

09:57 AM EDT, 09/16/2025 (MT Newswires) -- The Canadian headline consumer price index inflation for August came in at 1.9% year-on-year, below expectations for a 2.0% print, said TD after the CPI release on Tuesday.

August's reading was up from the 1.7% year over year posted in July.

Gasoline prices provided a smaller drag to the headline, down 12.7% year over year from 16.1% lower last month. On a monthly basis, prices rose 1.5% as higher refiner margins offset lower crude prices.

Prices for cellular services also fell at a slower pace (-1.2%) compared with July (-6.6%) as fewer back-to-school sales were available. Providing an offset was a steeper contraction in travel services (-3.8% year over year in August), with lower demand for destinations in the United States being cited by Statistics Canada as a contributor.

The Bank of Canada's CPI-trim measure dipped to 3.0% year over year versus 3.1% in July, while the CPI-median index was unchanged at 3.1% year over year. The CPI excluding food and energy ticked down to 2.4% year over year from 2.5% the month prior and the CPI excluding the eight most volatile components and indirect taxes (CPIX) was unchanged at 2.6% year over yea.

On a seasonally adjusted monthly basis, the CPIX (+0.19% from 0.06%), CPI excluding food and energy (0.13% from 0.07%) and CPI Median (0.23% from 0.14%) all accelerated in August. The CPI trim was the outlier, moderating slightly to 0.19% month over month from 0.23% month over month in July.

Momentum in the right direction from inflation this month, as the expected lift from energy prices had a smaller impact than expected, stated TD. In addition, even though three of the core indexes moved higher on the month, the trend towards cooler prints remains favorable.

Looking forward, the BoC should have room to cut at its meeting on Wednesday, according to the bank. The economy continues to show signs of waning momentum as the unemployment rate ticks higher and job losses accumulate.

In addition, the termination of many retaliatory tariffs against the United States will help provide some offset to price pressures. TD maintains the view that the BoC will have room to deliver two cuts this year to support growth and keep inflation in the target range.

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