Data Flashes

The Bottom Line:

The rise in headline CPI growth to 2.4% year-over-year was primarily driven by higher energy prices due to conflict in the Middle East, but broader underlying inflation pressures showed further signs of easing under the surface.

Year-over-year price growth also continues to be distorted heavily by tax changes. The removal of the consumer carbon tax in most parts of the country in April last year means energy price increases from a year ago are lower than they otherwise would have been, and a slowing in food prices was largely due to the end of the GST/HST tax holiday a year ago in mid-February that had artificially lowered the price of restaurant meals a year ago.

In contrast, the Bank of Canada’s own measures of core inflation (which exclude the impact of tax changes, as well as volatile swings in energy prices) remain consistent with cooling underlying inflation momentum. CPI-trim, CPI-median and trim services excluding shelter averaged 1.7% on an annualized three-month rolling average basis. That marks a continuation of the gradual easing trend in underlying inflation pressures, and the share of products with larger-than-usual month-over-month price increases has been lower year-to-date in 2026.

While some components, particularly grocery prices and rent, are still running well above (~4%) year-ago levels, the March report reinforces our view that recent increases in oil prices can push headline inflation higher in the near term but are unlikely to re-ignite broader inflation pressures. The BoC will keep a close eye on inflation expectations, but slower core price growth measures leave the central bank flexibility to also keep an eye on what is still a soft economic backdrop with the unemployment rate still elevated.

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The details:

• Energy prices were a key driver of the monthly increase. Gasoline prices accelerated to 5.9% year-over-year in March, reversing twelve consecutive monthly declines that began in early 2025.

• Year-over-year inflation continues to reflect base effects from prior tax changes, including the GST/HST holiday, which reduced price levels last year and continues to elevate current readings.

• The BoC’s own core inflation measures (which exclude the impact of tax changes) edged higher in March but have held near the 2% target. On an annualized three-month rolling average basis, CPI-trim stood at 1.3%, CPI-median at 2%, and trim services ex-shelter at 1.9%.

• The diffusion index, which tracks the breadth of inflation pressures, remained narrow. In March, 35% of the basket exceeded 3% (on a 3-month annualized growth rate basis) and 19% surpassed 5%—both consistent with historical pre-pandemic norms.

• However, some sub-components remained elevated. Food prices held at 4% year-over-year, with grocery inflation rising to 4.4% from 4.1% previously. Dining-in prices moderated, though this was largely due to distortions from the tax holiday.

• Meanwhile, shelter inflation climbed to 1.7%, ending a period of moderation that began in September 2025. Within this category, rent prices accelerated from 3.9% in February to 4.3% in March.

• Inter-city transportation also surged, reversing a downward trend in year-over-year prices that had persisted since mid-2024. Air transportation prices rose 3%, potentially driven by higher fuel costs that pushed airfares upward.

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About the author:

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.

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