{"id":9438,"date":"2026-04-13T17:38:19","date_gmt":"2026-04-13T17:38:19","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/?p=9438"},"modified":"2026-04-15T14:56:04","modified_gmt":"2026-04-15T14:56:04","slug":"higher-oil-prices-lift-headline-cpi-but-arent-expected-to-reignite-systemic-inflation","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/financial-markets-monthly\/higher-oil-prices-lift-headline-cpi-but-arent-expected-to-reignite-systemic-inflation\/","title":{"rendered":"Higher oil prices lift headline CPI but aren’t expected to reignite systemic inflation"},"content":{"rendered":"\n
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Highlights:<\/strong><\/h4>\n\n\n\n
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Geopolitical risk intensified:<\/strong> We upgraded our headline inflation forecasts for Canada and the U.S. again with higher oil prices persisting. Projections for core inflation, gross domestic product and unemployment rates were largely unchanged from March.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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International trade stabilizing:<\/strong> New U.S. announcements on existing Section 232 industrial metals tariffs and potential new pharmaceutical tariffs have not meaningfully changed the tariff landscape. Tariff revenues have continued to drift lower from their 2025 peak.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Central bank forecasts unchanged: <\/strong>Central banks will need to keep a close eye on inflation expectations as high oil prices persist, but won’t rush to respond to the energy supply shock. We maintain our outlook for them to hold interest rates through the end of this year. <\/p>\n<\/div>\n<\/div>\n\n\n\n

Issue in focus:<\/strong><\/h4>\n\n\n\n
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Today’s energy supply shock echoes the 2022 Russia-Ukraine conflict, but the backdrop is fundamentally different. Global supply chains are more resilient, domestic demand has softened, and the commodity shock is narrowly concentrated in oil. While prices of exposed commodities remain uncertain, we don’t expect elevated oil prices to reignite broad-based inflation in Canada this year.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Forecast changes:<\/h3>\n\n\n\n

Oil prices have risen above path we assumed in last update<\/h4>\n\n\n\n

Headline inflation forecasts in Canada and the U.S. were revised higher. Our energy price assumptions continue to follow market pricing shows elevated, yet moderating, oil prices in the quarters ahead. As a result, we continue to expect little passthrough to core inflation this year.<\/p>\n\n\n\n

Indeed, earlier research from the U.S. Federal Reserve<\/a> found “small but significant” second-round effects of oil prices on inflation in Canada, the U.K. and euro area with a 10% permanent oil price increase leading to higher food prices (up 0.3%) and core prices (up 0.1%) gradually over eight quarters.<\/p>\n\n\n\n

Moving forward, higher fuel costs will continue to claim a larger share of household disposable incomes, particularly for lower-income households. Still, we expect consumers will tap into savings to blunt the immediate impact before pulling back spending on non-energy goods and services.<\/p>\n\n\n\n

We continue to highlight the uneven impact of higher oil prices in Canada and the U.S. The hit to domestic demand if materialized could be offset by rising oil revenues to businesses and governments in oil-producing regions, leaving a neutral impact on GDP and labour markets this year.<\/p>\n\n\n\n

New U.S. steel and aluminum tariff adjustments don\u2019t alter trade outlook<\/h4>\n\n\n\n

Buried beneath Middle East headlines were recent U.S. adjustments to Section 232 tariffs on industrial metals, as well as announcements of new pharmaceutical tariffs to be imposed later this summer.<\/p>\n\n\n\n

The U.S. administration introduced a tiered system for steel, aluminum and copper tariffs\u2014leaving a 50% tariff intact on some products, while imposing an easier-to-administer flat 25% on a list of derivative products that were previously tariffed at 50%, but only on their metal content.<\/p>\n\n\n\n

New U.S. pharmaceutical tariffs (to be imposed later) critically exempt generic drug imports, which accounted of 79% <\/a>of U.S. drug imports from Canada over 2022\/2023. Overall, pharmaceutical products (including generics) accounted for 1% of Canadian exports to the U.S. in 2025.<\/p>\n\n\n\n

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Broadly, RBC Economics continues to expect moderation in U.S. tariffs later this year. The U.S. Treasury Department collected US$25.1 billion in customs duties in March after the new Section 122 tariffs kicked in to replace the IEEPA measures struck down by the Supreme Court. That’s 12% lower than duties collected in February, and 27% below the peak level reached last October.<\/p>\n\n\n\n

Here\u2019s a summary of all the changes we made in April:<\/p>\n\n\n\n