Canada's consumer price index held at 3% annually in August, in line with expectations and unchanged from July, supporting a steady-rate outlook for now, though rising energy prices remain a key risk, said economists after Monday's CPI data.
Inflation pressures remain contained, with little sign that higher energy costs are feeding into broader price gains, said the economists.
Still, oil prices above $100 a barrel are becoming an increasing concern for policymakers, they added.
"Oil prices are a real problem here, up nearly 5% again today," wrote BMO Capital Markets Canada Rates and Macro Strategist Benjamin Reitzes in a note. "That's going to drive angst among policymakers and concern that it's just a matter of time before we get some spillover into broader inflation."
Core inflation remained contained, with CPI excluding food and energy at 2.1% annually, while the BoC's preferred trim and median measures averaged 2.0% in August, according to economists.
August's price pressures were mainly driven by airfares, travel tours and rents, while food inflation moderated to 2.8% annually.
Inflation remained at the top of the BoC's 1% to 3% annual target range in August. As expected, the BoC's core measures also edged above 2%, as higher energy costs began to feed into prices across other parts of the economy, wrote TD Economics Senior Economist Leslie Preston in a note.
The August data alone are unlikely to trigger tighter policy in the coming months, but prolonged high oil prices could bring a BoC hike into play if inflationary pressures spread more broadly, added the economists.
"For monetary policy, oil is now in the driver's seat," wrote Royce Mendes, head of macro strategy at Desjardins Group, in a note.
For now, the data supports keeping rates unchanged, though the risk of an earlier hike is rising as energy prices increasingly influence the inflation outlook, said economists.
Bond yields briefly dipped following the release on Monday but quickly recovered as the data was broadly in line with consensus expectations, according to CIBC Capital Markets Senior Economists Andrew Grantham in a note.