Everyone knew that Canada's inflation would jump in March due to higher gasoline prices, but the only question remaining was how high would it jump, said CIBC after Monday's consumer price index data.
The 2.4% year-over-year headline reading, driven by a 0.9% non-seasonally adjusted (NSA) month-over-month increase (0.5% after seasonal adjustment), was actually slightly below the consensus expectation (2.6%), although still a sharp acceleration from 1.8% year over year in the prior month, noted the bank.
"Of course" higher gasoline prices were the primary driver of the acceleration in inflation, with only limited sign of pass-through to other areas yet, said CIBC. Indeed, if anything, core inflation was tamer than expected in March, with four measures (CPI-Trim, Median, CPI-X and excluding food/energy) averaging 0.1% month over month and 1.4% on a three-month annualized basis, it added, while noting telephone services saw a big decline on the month, which had a strong downward impact on the CPI-X and ex food/energy measures of core inflation.
Looking forward, CIBC said a further rise in gasoline prices will see headline inflation jump to around 3% next month, before hopefully easing back slightly in May, partly due to the temporary suspension of the federal fuel excise tax (worth about -0.2% percentage point to headline inflation for May).
Pass-through from higher energy prices into core measures of inflation may become more evident closer to the summer months, particularly as higher air fares are picked up more fully, but slack within the Canadian economy should prevent those measures from reaccelerating too much, enabling the Bank of Canada to remain on the sidelines through 2026, it added.