Canada’s Inflation Rate Stays Put at 3%: Here Are Some of the Stocks Most Affected by Elevated Rates

A prolonged period of higher interest rates can weigh heavily on corporate profitability, especially for businesses with significant debt.

Key Points
  • Canada’s inflation held at 3.0% in August, tempering expectations that the country could quickly return to lower interest rates.
  • BCE faces rising interest costs that are weighing on earnings, though debt reduction and diversified operations could support its recovery.
  • RioCan REIT’s strong occupancy and fixed-rate debt provide resilience, but elevated borrowing costs remain a risk to earnings and cash flow.

Canada’s inflation rate remained at 3% in August, matching the July reading and tempering expectations that the country could quickly return to a lower-interest-rate environment. Energy prices continued to contribute to inflationary pressures.

The latest inflation data could give the Bank of Canada reason to maintain its current policy stance for now. The central bank has kept its benchmark interest rate steady at 2.25%. However, if energy prices remain elevated and economic and labour-market conditions continue to improve, policymakers could face pressure to raise rates sooner than currently anticipated.

A prolonged period of higher interest rates can weigh heavily on corporate profitability, especially for businesses that rely on significant debt or ongoing capital investment. Telecommunications companies, real estate investment trusts (REITs), and utilities are among the sectors that are most affected by elevated rates.

As high interest rates continue to bite, corporate earnings for these two Canadian stocks are under pressure.

groceries get more expensive as inflation rises

Source: Getty Images

BCE stock

Canadian telecommunications company BCE (TSX: BCE) continues to face pressure from elevated interest rates, largely because its business requires significant debt to fund network infrastructure and other capital-intensive investments. In the second quarter of 2026, BCE’s interest expense rose by $27 million compared with the same quarter a year earlier. Year to date, interest costs were also $48 million higher than in the comparable period in 2025. Higher borrowing costs and larger average debt balances primarily drove the increase.

The rise in financing costs has weighed on BCE’s earnings and reduced the cash flow available to the business.

Despite these challenges, BCE is taking steps to strengthen its balance sheet while continuing to invest in key growth areas. The company brought its net debt leverage ratio down modestly to around 3.7 times and remains focused on reducing debt. Management continues to target a leverage ratio of approximately 3.5 times by the end of 2027.

BCE also benefits from a broad mix of businesses, including wireless communications, fibre internet, AI-enabled enterprise services, and media. This diversified operating base could provide multiple revenue sources as the company works to improve its financial position and continue returning capital to shareholders.

Although higher interest rates remain a headwind for BCE’s profitability, the company’s efforts to improve efficiency, strengthen customer retention, reduce leverage, and deliver profitable growth could help support its dividend and share price.

RioCan REIT stock

RioCan REIT (TSX: REI.UN) faces high interest rate risk. The REIT owns and manages a diversified portfolio of 164 properties, primarily in Canada’s major urban centers. Many of these properties are occupied by grocery stores, pharmacies, and service-oriented businesses, adding stability to its operations.

Notably, RioCan has maintained a relatively high proportion of fixed-rate debt compared with floating-rate obligations. Moreover, it has staggered its debt maturities to reduce refinancing concentration. However, interest rates remain an important factor affecting its financial performance. This is because interest expense is a substantial part of its overall cost of owning and operating real estate assets.

Its interest expenses have increased so far in 2026. However, its high-quality portfolio continues to support its growth. RioCan’s retail committed occupancy stood at 98.8% at the end of the second quarter, highlighting the resilience and continued demand for its properties. High occupancy levels provide the REIT with relatively stable rental income.

RioCan has also been working to streamline and improve its asset base by reallocating capital away from non-core properties and assets. RioCan is directing the capital generated from these transactions toward high-return opportunities, debt reduction, and retail acquisitions.

Overall, RioCan’s high-quality portfolio, strong occupancy levels, and efforts to manage leverage support the investment case. However, the REIT remains exposed to the financial effects of elevated borrowing costs. Its relatively high debt level means persistently high interest rates could continue to weigh on earnings and cash flow.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

dreaming of financial success
Dividend Stocks

3 Questions to Ask Before Buying a Dividend Stock

Buying a dividend stock? Here are three questions to help you look beyond the yield, with examples from Enbridge, Fortis…

Read more »

Woman in private jet airplane
Dividend Stocks

Make $100 a Month Tax-Free: How Much to Invest in Diversified Royalty and Where

The TFSA is the ultimate investment account to place your money and earn tax-free income.

Read more »

man in bowtie poses with abacus
Dividend Stocks

Passive Income From Dividends: What Canadians Can Realistically Expect

Here's the actual dividend math the passive income gurus won't show you.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

RRSP, TFSA or Both? A Quick Guide by Income Level

Your RRSP and TFSA are complementing accounts that you can use to shield your income from taxes.

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

Buying Your First Home? The $8,000 FHSA Deduction Most Renters Miss

An eligible renter's $8,000 FHSA contribution can save $2,400 at a 30% tax rate, with the purchase date guiding investments.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Building Your First Dividend Portfolio: Where Canadians Can Start

Here's my dividend stock picking guide, along with a dividend ETF to make it hands-off.

Read more »

gift is bigger than the other
Dividend Stocks

Enbridge vs. Telus: Which Pays More Reliable Income Through 2030?

Let’s compare Enbridge and Telus on financial performance, dividend history, yield, growth prospects, and valuation to see which offers the…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

TFSA Income: 2 Top TSX Dividend Stocks to Collect Steady Cash in Your Golden Years

These top Canadian stocks have delivered steady dividend growth for decades.

Read more »