Canadian Consumer Price Index (CPI) increased by 0.9% month-over-month in March, raising the annual inflation rate to 2.4%. This uptick was primarily driven by higher gasoline and transportation costs, according to TD Securities analysts [1]. Despite the headline inflation rise, core measures—including inflation excluding food and energy and the Bank of Canada’s (BoC) preferred metrics—showed signs of softening [1].
The report highlights that while headline inflation remains above trend due to energy prices, the BoC is expected to maintain a cautious and patient policy stance. The central bank has indicated its willingness to look through the initial inflationary shock as long as long-term inflation expectations remain anchored [1].
Specifically, inflation excluding food and energy (xFE) dropped below 2.0% year-over-year, and the proportion of the CPI basket with inflation above 3.0% decreased in March. Additionally, the three-month annualized pace of core inflation is now at 1.6%, which is comfortably below the BoC’s target [1].
TD Securities expects above-trend headline inflation to persist temporarily into early spring due to ongoing energy price effects, but the latest data supports the likelihood that the BoC will repeat its cautious tone at the upcoming interest rate announcement [1].
CONCLUSION
The latest Canadian CPI data shows headline inflation rising due to energy costs, but core inflation measures remain subdued. This supports expectations that the Bank of Canada will maintain a cautious policy stance, with no immediate shift in interest rate policy anticipated.