By Craig Lord
Many shoppers are nonetheless reeling from the decades-high inflation ranges seen within the post-pandemic restoration interval, when costs for housing, gas and groceries all surged.
However the elements shaping inflation in the present day are totally different from those in play when the lockdowns ended, and MPs and the Financial institution of Canada at the moment are grappling with the influence of tariffs, taxes and authorities spending on the price of residing.
Right here’s what that you must know concerning the state of inflation in Canada.
The place does inflation stand in the present day?
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 accountable 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 quick month-to-month enhance in inflation isn’t a lot to fret about by itself.
He mentioned policy-makers ought to watch developments 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 large issue easing inflation proper now could be the termination of the patron carbon value.
As a result of the carbon levy was in place for shoppers in 2024, the Liberals’ transfer to finish the coverage in April has meant decrease costs on the gasoline pumps in current months, skewing knowledge within the year-over-year comparisons.
Shelter inflation can be diminishing because the tempo of inhabitants progress slows, easing competitors for flats and decreasing lease costs in lots of cities.
Canadians purchasing for a brand new mortgage in the present day are additionally seeing charges nearer to 4 per cent on a five-year mounted mortgage. Charges had been properly over 5 per cent this time final 12 months.
One space the place shoppers are nonetheless feeling the pinch is meals inflation, which StatCan pegged at 3.4% in August. That price remains to be properly beneath the double-digit yearly positive factors seen throughout the top of the inflationary interval of some years in the past.
Askari mentioned shoppers are feeling the cumulative influence of years of inflation pushing costs increased, notably on the grocery retailer.
Costs are likely to rise rapidly 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 increased?
One other drive affecting grocery inflation is Canada’s retaliatory tariffs towards 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 an excellent 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 troublesome 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 patron carbon value, Bartlett expects the tip of counter tariffs will go away headline inflation a full share 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 regularly fade by the remainder of the 12 months.
What about authorities spending?
Conservative Chief Pierre Poilievre has accused the federal authorities of working deficits that gas inflation.
“Deficits drive up inflation, grocery costs, housing prices and rates of interest,” he mentioned in query interval on Sept. 17.
Consultants say the influence of federal spending on inflation is much less clear than that.
Askari mentioned that when authorities spending leads to 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 geared toward rising 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 shouldn’t be right,” he mentioned.
Canada’s economic system contracted within the second quarter, and most economists count on 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 price range might, in truth, be increased than warranted, given the state of the economic system.
Ottawa’s deliberate capital investments could possibly 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 run, he added.
“The proof within the pudding goes to be within the tasting, when it comes to 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 go, he mentioned.
What’s taking place to rates of interest?
The Financial institution of Canada has been watching inflation fastidiously this 12 months, 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 reduce 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 danger (of inflation), they might not have completed that,” Askari mentioned of the speed reduce.
The Financial institution of Canada has not baked the federal authorities’s current spending bulletins into its forecasts.
Macklem mentioned the central financial institution will achieve this as soon as these spending plans are revealed within the federal price range, set for Nov. 4 — roughly per week after the Financial institution of Canada’s subsequent rate of interest announcement.
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Final modified: September 26, 2025
