Bank of Canada Says Inflation Will Probably Stay Elevated for a While: Where to Invest Now

These two Canadian stocks would be excellent buys in this persistent inflationary environment.

Last week, Statistics Canada reported that Canada’s annual inflation rate held steady at 3% in August, matching July’s increase. While gasoline price growth moderated from the previous month, higher prices for travel and rent offset some of the decline. Food inflation also eased, with grocery prices rising 2.8% year over year in August.

Meanwhile, the Bank of Canada expects inflation to remain elevated in the near term, with the ongoing conflict in the Middle East and limited progress toward reopening the Strait of Hormuz keeping energy prices under pressure. The central bank also noted that new U.S. tariffs and Canadian counter-tariffs could add to business costs and eventually feed through to consumer prices. However, the Bank of Canada’s Governing Council believes the impact of Canadian counter-tariffs on inflation will likely be muted and spread over time, as many affected goods are intermediate inputs or have Canadian substitutes.

Against this backdrop of persistent inflation and heightened economic uncertainty, investors may want to consider companies with resilient business models, strong cash flows, and the ability to navigate higher costs. With that in mind, let’s look at two Canadian stocks that could offer attractive opportunities in the current environment.

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Canadian Natural Resources

The ongoing conflict between the United States and Iran, coupled with restrictions on oil tanker movements through the Strait of Hormuz, has pushed crude oil prices higher, creating a favourable backdrop for oil producers such as Canadian Natural Resources (TSX: CNQ). The company operates a diversified portfolio of large, high-quality, long-life reserves that require relatively low levels of capital reinvestment. Its efficient operations have also lowered costs and reduced its breakeven price, supporting healthy margins and resilient cash flows across commodity-price cycles. These reliable cash flows have enabled CNQ to increase its dividend at an annualized rate of approximately 20% over the past 26 years. The stock currently offers a forward yield of about 3.7%.

Meanwhile, CNQ continues to invest in expanding and sustaining its production capacity. After deploying approximately $4.4 billion in capital during the first two quarters, the company remains on track to invest around $7.6 billion this year. Its approximately five billion barrels of oil equivalent in reserves and a proven reserve life of roughly 30 years also provide substantial visibility into future production and cash-flow generation. With a low-cost asset base, strong financial position, and significant long-term reserves, CNQ could remain well positioned to benefit from a supportive commodity-price environment while continuing to return capital to shareholders.

Dollarama

Another stock that could benefit from the current inflationary environment is Dollarama (TSX: DOL), which operates 1,734 discount stores across Canada and another 414 in Australia. Its direct-sourcing model, efficient operations, and well-optimized logistics help keep costs under control, allowing the company to offer a broad range of everyday products at attractive prices. As persistent inflation pressures household budgets and erodes purchasing power, consumers may increasingly turn to value-oriented retailers such as Dollarama, supporting store traffic and same-store sales.

Meanwhile, Dollarama continues to expand its store network and expects to increase its Canadian and Australian footprints to 2,200 and 700 stores, respectively, by the end of fiscal 2034. Its resilient same-store sales, capital-efficient business model, rapid sales ramp-up, and relatively modest store-maintenance requirements should allow the company to expand profitably while supporting sustained revenue and earnings growth.

Dollarama could also benefit from its 60.1% stake in Dollarcity, which continues to expand across Latin America. Dollarcity plans to increase its store count from 781 to 1,050 by fiscal 2031, providing another avenue for long-term growth. With multiple expansion opportunities, resilient same-store sales, and a proven ability to operate efficiently, Dollarama could be a compelling option for investors seeking exposure to a defensive, value-focused business in a persistent inflationary environment.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Dollarama. The Motley Fool has a disclosure policy.

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