(Sept 14): Canada's inflation rate was unchanged at 3% last month, matching expectations as gasoline prices rose at a slower annual pace.

While the conflict in the Middle East continues to put upward pressure on energy costs, prices at the pump rose 22.8% in August following a 25.7% increase in July, Statistics Canada reported on Monday.

The year-over-year slowdown in gasoline prices was offset by higher prices for travel tours and rent.

On a monthly basis, the consumer price index fell by 0.1%, also matching the median estimate in a Bloomberg survey of economists. The Bank of Canada's preferred median and trim core measures of inflation were unchanged as well at 2% and 1.9% respectively.

The data suggests underlying price pressures remained under control in August, even as the Bank of Canada grows increasingly concerned about inflationary risks from the Iran war.

Bank of Canada governor Tiff Macklem warned earlier this month that the longer the conflict in the Middle East goes, the more likely higher energy prices feed through to other prices in the economy.

Macklem said that while renewed trade tensions with the US add to inflation risks, elevated energy prices are a bigger concern.

Hotter-than-expected US inflation data has also solidified expectations of a rate hike by the Federal Reserve this week.

Prior to the consumer price index (CPI) release, traders in overnight swaps put the odds of a rate hike by the Bank of Canada next month at about 75%.

But many economists say the rate hike expectations may be premature, as the economy shows signs of slower growth in the third quarter, and core measures of inflation remain subdued around the 2% target.

At the same time, there is some evidence that elevated energy costs may be spreading through to the broader economy. The share of CPI components rising at or above 3% rose in August to 37.3% from 34.8% in July.

A three-month moving annualised average of the central bank's core measures also accelerated to 2.19%, from 2.01% the previous month. Yearly inflation excluding food and energy rose to 2.1% from 1.9%.

Meanwhile, travel tour prices rose at a faster annual pace of 26.1% in August following as 15.2% increase in July, in part due to a base year effect. A pullback in travel to the US last year weighed on prices in August 2025.

Rents also rose faster at 2.8% annually, up from 2.5% in July.

Meanwhile, grocery price inflation fell below the headline inflation rate for the first time in about two years, rising 2.8% year-over-year, after increasing 3.1% in July.

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