The jobless rate held steady at 6.4% while employment losses were concentrated in Ontario and Quebec, Statistics Canada reported on Friday.

Employment fell among youth aged 15 to 24 (-19,000; -0.7%) and edged down (-16,000; -0.1%) among people in the core-age (25 to 54 years old).

While the overall unemployment rate was unchanged in August, it increased among core-aged men (+0.2 percentage points to 6.0%) and fell for core-aged women (-0.2 percentage points to 5.0%). The unemployment rate was little changed for youth (12.9%) and people aged 55 and older (5.1%).

Employment declined in business, building and other support services (-20,000; -2.8%), public administration (-8,800; -0.7%), natural resources (-7,700; -2.3%) and utilities (-5,600; -3.5%), while it increased in manufacturing (+22,000; +1.2%).

Employment declined in Quebec (-19,000; -0.4%) and edged down in Ontario (-18,000; -0.2%), the two provinces hardest hit by US tariffs. Employment increased in New Brunswick (+2,400; +0.6%) and was little changed in the other provinces.

Average hourly wages among employees were up 2.0% (+$0.71 to $37.02) on a year-over-year basis in August, following growth of 2.8% in July (not seasonally adjusted).

The unemployment rate was unchanged at 6.4% in August. This follows three consecutive monthly declines in May, June and July totalling 0.5 percentage points.

Among the 1.5 million people who were unemployed in August, 24.0% were in long-term unemployment, meaning they had been continuously searching for work for 27 weeks or more. This proportion was similar to that of August 2025 (23.0%) and remained above the pre-COVID-19 pandemic average of 17.1% recorded from 2017 to 2019.

The layoff rate was 0.8% in August, slightly below the rate of 1.0% observed 12 months earlier and similar to the average layoff rate (0.9%) observed for the corresponding months from 2017 to 2019 (not seasonally adjusted). The layoff rate refers to the proportion of people who became unemployed due to a layoff between July and August.

Industries dependent on U.S. demand for exports continue to face an uncertain economic context, compounded by the recent imposition of new U.S.tariffs on Canadian exports. In the 12 months to August, the layoff rate averaged 0.9% for workers in industries dependent on U.S. demand for exports. In comparison, the rate was 0.7% for other industries over the same period.

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—fell 0.1 percentage points to 65.0% in August, offsetting a similar-sized increase in July. On a year-over-year basis, the participation rate was little changed.

Manufacturing (+22,000; +1.2%) was the only sector to record a significant increase in employment in August, with most of that increase (+14,000; +1.7%) in Ontario. Year over year, employment in this sector was largely unchanged, as the August increase offset earlier decreases.

Over the 12 months to August, employment growth was concentrated in health care and social assistance (+129,000; +4.5%), information, culture and recreation (+49,000; +5.9%) and transportation and warehousing (+47,000; +4.4%). On the other hand, wholesale and retail trade (-55,000; -1.8%) recorded the largest decline across industries over the same period.

Year-over-year growth in average hourly wages decelerates for the second consecutive month
Average hourly wages among employees in August were up 2.0% (to $37.02) year over year, following growth of 2.8% in July and 3.3% in June (not seasonally adjusted).

Year-over-year growth in average hourly wages remained robust through the post-pandemic period, averaging 4.9% over 2023 and 2024 before decelerating to an average of 3.4% in 2025. Wage growth in August 2026 was the slowest since November 2017 (when it was also 2.0%), excluding the year 2021, during the COVID-19 pandemic.

Year-over-year wage growth was slower for employees with lower wages in August. For employees in the bottom 25% of the wage distribution, average hourly wages were up 1.1% (to $18.66) year over year, while they were up 1.3% (to $26.61) for employees in the second lowest 25% of the wage distribution. In comparison, wages grew faster for employees in the third (+2.1% to $37.99) and top (+2.1% to $65.15) quartiles.

Bottom Line

In a separate release this morning, the U.S. nonfarm payrolls report showed exceptional strength in direct contrast to the Canadian jobs report. The U.S. added 162,000 net new jobs, about triple the consensus estimate. The report included upward revisions for prior months. Wages gained, too, but still trail annualized inflation. The jobless rate held at 4.1%. The labour force participation rate expanded, and the strong report stoked bets on a September Fed interest rate hike when the FOMC meets again on September 15-16.

The Bank of Canada is likely to remain on the sidelines as inflation is weaker in Canada and the economy is vulnerable to a broader slowdown, particularly if the Trump administration introduces even larger tariffs on January 1, as it is currently threatening

According to the Bank’s policy statement, “The continuing conflict in the Middle East is keeping energy prices high. New US tariffs and Canadian countermeasures have also been announced following the breakdown of trade talks between Canada and the United States. Both situations remain fluid.”

Overall, the global economy has shown resilience in the face of geopolitical headwinds. With still-high oil prices and elevated margins for refined energy products, inflation remains high in most countries.

Financial conditions have tightened since July. Long-term bond yields have moved up globally, including in Canada. The Canadian dollar has appreciated slightly on US-dollar weakness.

The Canadian economy strengthened considerably in Q2, with growth of 3.3%, while the Q1 figure was revised up to 0.3% from an initial reading of -0.1%. While some of the recent strength reflected temporary factors, the pick-up in activity was broad-based. Consumption showed solid gains. After several weak quarters, housing activity rebounded. Exports and business investment were up sharply. Labour market conditions have improved in recent months, with the unemployment rate edging down to 6.4% in July. Still, demand for labour remains subdued, and indicators point to continued excess supply in the economy.

Overall, recent data reaffirm the Governing Council’s view of a broadening recovery in Canada’s economy. However, uncertainty is high and new US tariffs and threats of further action pose risks to the sustainability of the recovery.

CPI inflation has been hovering around 3% in recent months, mainly because of persistently higher gasoline prices. So far, there has been little evidence of higher energy prices spreading to other components of inflation: excluding gasoline, inflation was 2.2%, and core inflation measures remained close to 2% in July. However, with the Middle East conflict still ongoing and little progress in reopening the Strait of Hormuz, upside risks to the Bank’s inflation forecast have increased. The longer that high oil prices and elevated refinery margins persist, the greater the risk of spillover to the prices of other goods and services. New US tariffs and Canadian counter-tariffs will also raise costs for some businesses and could feed into consumer prices over time.

“Economic growth in Canada has picked up after stalling over the past year. That puts us on a stronger footing as we face new challenges,” Macklem said in the prepared text of opening remarks for his press conference. “But uncertainty about the sustainability of the rebound has increased with new US trade actions.”

With the economy and inflation evolving broadly as forecast in the July MPR, Governing Council agreed to leave the policy rate unchanged. However, the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain. Governing Council will assess the sustainability of the economic rebound and the outlook for inflation, and is prepared to adjust monetary policy as needed. The Bank remains committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty and a record oil price shock. PM Carney is also working to diversify Canada’s trade away from the US, a strategy that has been remarkably successful so far. Canadian export diversification is gaining momentum. In addition, goods imports are also shifting away from the US to the rest of the world.

We maintain our view that the Bank of Canada will keep rates steady this year. If inflation broadens and accelerates, rate hikes are possible, but that is not our baseline forecast. The Bank of Canada will be reluctant to tighten into housing market weakness. While housing activity strengthened since May, momentum is muted, and affordability improvements are likely to taper off in the coming months.

The Federal Open Market Committee meeting is scheduled for September 15-16. Based on comments from Fed Chair Kevin Wash at the annual Jackson Hole Fed confab, a rate hike by the Fed is likely. Traders now predict a 68% chance of a fed funds rate hike of 25 bps.

On a per capita basis, real GDP increased 1.0% in the second quarter of 2026, as the Canadian population declined for the third consecutive quarter.

Exports rose 3.6% in the second quarter of 2026, the largest increase since the first quarter of 2023. The rise in exports in the second quarter of 2026 was led by an increase in exports of passenger cars and light trucks (+27.0%), coinciding with a rebound in auto production in Canada following declines in the preceding two quarters. Higher exports of intermediate metal products, energy products, and industrial machinery and equipment also boosted overall export volumes in the second quarter.

Imports rose 0.3% in the second quarter of 2026, after increasing 3.1% the previous quarter. Higher imports of tires, motor vehicle engines and vehicle parts led the overall increase, followed by imports of basic chemicals and computers and computer peripherals. These increases were partially offset by a decline in imports of intermediate metal products, mainly unwrought gold.

Residential investment rallied in the second quarter of 2026, increasing 2.5% following two consecutive quarterly declines. All components of residential investment were up in the second quarter, with ownership transfer costs—which represents resale activity—rising the most in Ontario, Quebec and British Columbia. New construction rose 0.8% in the second quarter led by work put in place for apartments in British Columbia.

Household spending up on higher demand for services
Household final consumption expenditure rose 0.8% in the second quarter of 2026, led by higher spending on mutual funds and other investment services, passenger vehicles and rent. Meanwhile, households purchased less gasoline and food in the second quarter, likely in response to higher prices. On a per capita basis, housing spending was up 1.0% in the second quarter.

Gross domestic product deflator records its largest increases in four years on higher export prices
The GDP deflator rose 2.5% in the second quarter of 2026, the largest increase since the second quarter of 2022. Growth in the deflator was led by export prices, which rose 6.5% in the second quarter of 2026 following a substantial rise in international oil prices. Meanwhile, import prices were up 3.2%, resulting in the terms of trade—the difference between the price of exported goods and services and the price of imported goods and services—increasing 3.3%.

Compensation of employees rises
Compensation of employees increased 1.5% in the second quarter of 2026, led by higher wages in finance, real estate and company management and trade. Wages fell in transportation and storage as well as information and cultural industries.

Compensation of employees grew in all provinces and territories in the second quarter of 2026, ranging from 2.5% in New Brunswick to 0.5% in Newfoundland and Labrador.

Corporate incomes rise sharply on higher energy prices
Corporate incomes rose 9.6% in the second quarter of 2026, the largest increase since the first quarter of 2021. The energy sector was the top contributor to the increase in corporate surplus in the second quarter of 2026. Meanwhile, manufacturing industries, which is heavily reliant on energy inputs, recorded lower operating surplus as their costs increased. Among financial corporations, surplus was led by strength in investment dealers and financial investment activity as equity markets strengthened in the quarter.

Household saving rate up as income grows more than spending
The household saving rate reached 3.7% in the second quarter of 2026 as growth in disposable income (+2.1%) outpaced nominal household spending (+1.7%). The household saving rate is aggregated across all income brackets; in general, saving rates are greater in higher income brackets.

Disposable income gains in the second quarter of 2026 were mainly due to increases in wages and salaries and higher transfers from government. The increase in government transfers was mainly due to a one-time GST/HST credit top-up payment provided in June as part of the transition to the Canada Groceries and Essentials Benefit as of July 2026.

Net investment income (termed net property income) was flat in the second quarter of 2026, after falling for three consecutive quarters. Investment income received rose 0.7%, while property income payments were up 1.6%, as interest on both mortgage and consumer credit grew at the fastest pace since the second quarter of 2024 and continued the reversal in the trend of declining interest expenses.

Bottom Line
Today’s data releases are a look in a rear-view mirror, as they predate the latest US-Canadian trade war. New tariffs coming from both Canada and the US will no doubt slow trade between the two countries, weakening economic activity and raising domestic prices on both sides of the border.

The Bank of Canada meets again on September 2, when it will likely hold the overnight policy rate stable at 2.75%.

Year over year, gasoline prices grew faster in July (+25.7%) than in June (+20.5%). The conflict in the Middle East, including the blockade of the Strait of Hormuz and the partial closure of Red Sea shipping routes in late July, put upward pressure on gasoline prices.

Year over year, prices for travel tours rose faster in July (+15.2%) than in June (+6.8%). Higher prices were driven by more expensive hotels and flights, coinciding with World Cup matches.

Similarly, air transportation prices rose 12.0% year over year in July, following a 9.6% increase in June. Contributing to the price increase were higher jet fuel costs.

The average of the Bank of Canada’s preferred core measures of inflation rose by 1.95%, barely rising from the previous month and remaining below its 2% target.

Prices for food purchased from stores grew more slowly in July (+3.1%) than in June (+3.9%) on a year-over-year basis. Despite the slowdown, July was the 18th consecutive month that grocery price inflation outpaced the all-items CPI.

The year-over-year deceleration in grocery prices was driven by slower price growth for fresh vegetables (+3.9%) and fresh or frozen chicken (+0.3%) as well as lower prices for cereal products (-1.7%). Higher prices for fresh fruit in July (+6.1%) compared with June (+1.7%) moderated the slowdown.

On a monthly basis, price growth for fresh fruit recorded the highest month-over-month movement for the month of July since 2011, at 4.7%. Driving the monthly increase were higher prices for berries and melons.

Year over year, prices rose faster in all provinces in July than in June, except for Ontario.
Year over year, Ontario was unchanged at 2.0% in July compared with June (+2.0%). This was the smallest price increase among the provinces, driven by declines in homeowners’ replacement cost (-4.6%) and natural gas prices (-18.7%).

Nova Scotia had the highest rate of inflation among the provinces at 5.0% in July. Higher prices for electricity (+3.3%) and rent (+8.7%) drove the acceleration.

In New Brunswick, faster price growth was led by higher prices for electricity (+4.4%) and traveler accommodation.

The 12-month change in the Consumer Price Index (CPI) and CPI excluding gasoline

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader resurgence in underlying inflation. While food and shelter continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid slowing domestic demand.

The duration of the disruption in the Strait of Hormuz remains a key risk. The longer the shipping route remains closed, the longer energy prices are likely to remain elevated. Even so, the June data support our base-case scenario that the Bank of Canada will remain on hold through the remainder of 2026. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent. Still, for now, underlying inflation trends remain consistent with a patient, wait-and-see approach.

Canadian employment defied the bears by jumping 75,100 in July, nearly evenly split between full-time and part-time work. Self-employment (+44.4k) accounted for close to half of the overall increase, while private sector jobs still rose by 57.9k. These were offset by a 27k drop in public sector jobs (a rarity, echoing the big drop seen stateside in July). Decisively, total hours worked rose 0.6% m/m in July.

Employment increased by 181,100 between May and July, marking the biggest three-month employment gain since before US President Donald Trump began imposing tariffs on Canadian goods last year.

The employment rate increased by 0.1 percentage points to 60.9% in July. The rate was up 0.2 percentage points compared with 12 months earlier.

A higher proportion of people searching for work have been finding jobs compared with last year, with the job-finding rate coming in at 20.8%. This was up from 18.5% for the same period a year earlier but below the pre-COVID-19 pandemic average of 26.6% recorded for the same period from 2017 to 2019 (not seasonally adjusted). Canada’s population barely grew in the past year given the tightening in immigration policy, making it easier for the jobless to find work.

Wholesale and retail trade (+21,000; +0.7%) recorded the largest employment increase across industries in July. Despite the monthly increase, employment in this industry was down by 50,000 (-1.7%) compared with 12 months earlier, largely reflecting a downward trend observed from January to May 2026.

Chart 5
Employment change by industry, July 2026

Provinces had varied results, with employment increasing the most in Ontario (52,000 jobs), in British Columbia (18,000 jobs), Manitoba (5,900 jobs) and Nova Scotia (4,600 jobs). Alberta and Quebec saw little change, although Alberta has seen notable job growth and decline in unemployment since July 2025.

Among the three largest census metropolitan areas, the unemployment rate rose by 0.7 percentage points to 6.6% in Montréal, offsetting a similar-sized decline in the previous month. In Vancouver, the unemployment rate fell 0.6 percentage points to 6.0% in July. The unemployment rate was little changed in Toronto at 6.7%; however, it was down from a recent high of 9.0% observed in July 2025.

In direct contrast to the Canadian jobs report, the US nonfarm payroll report was much weaker than expected. US employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower, suggesting the labour market is weaker than previously thought after surprising strength earlier this year.

Nonfarm payrolls decreased 23,000 last month following a combined 103,000 downward revision to the May and June figures, Bureau of Labour Statistics data showed Friday. The unemployment rate fell to 4.1% as labour force participation continued to slide, and wage growth slowed.

According to Bloomberg news, the US labour market may be starting to falter amid rising prices and uncertainty from the Iran war, despite recent data showing strength in consumer spending and business investment. The data could also prompt the Federal Reserve to delay interest-rate increases as officials measure inflation against risks to employment.

Bottom Line

Employment increased by 181,100 between May and July in Canada, marking the biggest three-month employment gain since before US President Donald Trump began imposing tariffs on Canadian goods. These blockbuster Canadian jobs reports, accompanied by inflation risk stemming from high tariffs and the war in Iran blocking the Strait of Hormuz, are troubling for both stocks and bonds.

While the economy continues to show signs of stabilization, trade uncertainty still looms. US President Donald Trump has threatened to impose a new round of 50% tariffs on a number of Canadian goods starting Aug. 19.

Canadian officials met with US Trade Representative Jamieson Greer on Thursday as the two sides try to find a deal before Trump’s deadline.

With wage growth decelerating further and energy prices more moderate, the Bank of Canada won’t take on a more hawkish tone yet, though a strengthening economic backdrop could eventually push it in that direction if it persists.

Canada’s annual inflation rate rose to 3.2% in May, Statistics Canada reported Monday, marking its highest level since December 2023. The increase exceeded economists’ expectations, with Bloomberg’s survey consensus forecasting a 3.0% gain, up from 2.8% in April. On a monthly basis, consumer prices climbed 1.0%, also coming in above forecasts.

Despite the headline surprise, measures of underlying inflation suggest price pressures remain relatively contained as the economy continues to adjust to slower population growth and the adverse effects of U.S. trade policies on exports.

Excluding food and energy, inflation accelerated to 1.6% year-over-year, while the consumer price index excluding gasoline increased 2.2%. The average of the Bank of Canada’s preferred core inflation measures—the trim and median indexes—held steady at 2.1%. However, on a three-month annualized basis, both gauges picked up sharply to 2.3%, indicating some recent firming in underlying inflation trends.

Financial markets initially interpreted the report as supportive of tighter monetary policy. The Canadian dollar strengthened briefly before reversing course, trading at US$0.7062 per Canadian dollar. Meanwhile, the two-year Government of Canada bond yield rose roughly two basis points to 2.79%. Overnight index swaps continue to price in nearly one quarter-point Bank of Canada rate increase by year-end.

The conflict in the Middle East continued to drive higher energy costs in May, with gasoline prices rising 33% from a year earlier, according to Statistics Canada. Air transportation prices also surged, increasing 7.4% after falling 1.7% in April. Airlines are experiencing higher operational costs, notably for jet fuel.

Since then, easing tensions between the United States and Iran has helped push oil prices lower, with Canadian gasoline prices retreating to their lowest levels since mid-March. If sustained, the decline should provide some relief to consumers and help moderate headline inflation in the months ahead. Earlier this month, Bank of Canada Governor Tiff Macklem said he expects inflation to remain near 3% in the near term before gradually returning to the central bank’s 2% target.

Gasoline prices increased 33.2% year-over-year in May, accelerating from a 28.6% gain in April. The escalation was largely driven by supply concerns linked to the conflict in the Middle East, particularly disruptions associated with the closure of the Strait of Hormuz. These uncertainties pushed gasoline prices higher for a third consecutive month. As a result, Canadians paid the highest prices at the pump since June 2022, when Russia’s invasion of Ukraine triggered similar supply fears and a sharp increase in global energy costs.

Four of the eight major components accelerate in May

On a month-over-month basis, prices for fresh vegetables rose 5.5% in May following a decline of 3.9% in April. This is the largest monthly increase in May since 2008 and is attributed to reduced supply and higher fuel costs.

Collectively, higher prices for fresh fruit and fresh vegetables contributed to an acceleration in inflation for food purchased from stores, rising 4.3% year over year in May, the 16th consecutive month it has outpaced headline inflation on a year-over-year basis. Food prices will continue to rise, reflecting a 40% increase in nitrogen fertilizer prices during the planting season.

Shelter inflation continued to moderate in May, with prices rising 1.7% year-over-year, down slightly from 1.8% in April. The homeowners’ replacement cost index fell 2.5%, marking its 13th consecutive decline. Other owned accommodation expenses, including real estate commissions, decreased 2.1% following a 2.7% drop in April. Meanwhile, mortgage interest costs edged lower, declining 0.2% year-over-year compared with a 0.1% decline in April, extending a 33-month trend of slowing mortgage cost inflation.

Rent inflation also eased modestly, rising 3.5% from a year earlier versus 3.6% in April, the slowest pace of rent growth since January 2022.

Price growth for durable goods was unchanged at 1.9% year-over-year in both April and May. A notable source of upward pressure came from computer equipment, software, and supplies, where prices rose 3.9% after declining 0.2% in April. Higher costs for key components such as random-access memory (RAM) and solid-state drives (SSDs), driven by strong demand from artificial intelligence data centres and limited production capacity, contributed to the increase.

Offsetting some of these gains, price growth slowed across several other durable goods categories. Increases were more modest for tools and household equipment (+1.1%) and passenger vehicles (+2.5%), while prices for household appliances fell 5.7% year-over-year, a steeper decline than previously recorded.

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices will temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader surge in underlying inflation. While food and transportation continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid a softer labour market and slowing domestic demand.

May data support our base-case scenario that the Bank of Canada will remain on hold through the remainder of 2026. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent, but for now, underlying inflation trends remain consistent with a patient, wait-and-see approach.