According to Royal Bank of Canada (RBC) economist Abbey Xu, Canada's headline Consumer Price Index (CPI) increased to 2.4% year-over-year, a rise primarily attributed to higher energy prices resulting from conflict in the Middle East and tax distortions [1]. Despite this uptick in headline inflation, the Bank of Canada's (BoC) core inflation measures, such as CPI-trim and CPI-median, indicate a continued easing of underlying inflation pressures [1].
Xu highlights that the BoC's core measures, which exclude the effects of tax changes and volatile energy prices, averaged 1.7% on an annualized three-month rolling average basis for CPI-trim, CPI-median, and trim services excluding shelter [1]. This data supports the ongoing trend of gradually cooling inflation momentum beneath the surface [1]. Additionally, the proportion of products experiencing larger-than-usual month-over-month price increases has been lower year-to-date in 2026 [1].
While certain components, notably grocery prices and rent, remain elevated at approximately 4% above year-ago levels, the March inflation report reinforces RBC's view that recent increases in oil prices may push headline inflation higher in the near term but are unlikely to reignite broader inflation pressures [1]. Xu suggests that this environment provides the Bank of Canada with flexibility, given the still soft economic backdrop [1].
CONCLUSION
Canada's latest inflation data shows headline CPI rising due to energy costs, but core inflation continues to cool, suggesting underlying price pressures are easing. This dynamic gives the Bank of Canada more flexibility in its policy decisions, as broader inflation risks appear contained despite near-term energy-driven volatility.