Canadian consumer prices "popped" 0.9% month over month in March, lifting the year over year headline inflation rate to 2.4% from 1.8% the prior month, noted Bank of Montreal (BMO) after Monday's consumer price index data.
While BMO noted the jump was no surprise, with gasoline prices surging by a record 21.2% in the month based on records dating back to 1949, it said core was milder than expected, helping hold the overall inflation rate a bit below consensus expectations around 2.6% for March.
According to BMO, the Bank of Canada's two main measures of core were "calm", with median holding steady at 2.3% year over year, and trim easing a tick to 2.2%, a five-year low. It noted the older, more traditional, measures of core, excluding food & energy, are still hovering right around the 2% target. The shorter-term metrics are all at that pace or even well below, while the breadth of core inflation moderated notably as well, BMO added.
BMO noted the overall details were quite lopsided, with all five of the big gainers driven by the oil shock. They being gasoline, travel tours, air fares, fuel oil, and fuel for recreational vehicles.
Meantime, the big drags last month were quite diverse, indicating the underlying story for the economy is softness, said BMO. It noted telephone services, auto insurance, furniture, candy, and mortgage interest costs all posted declines last month. But it also noted two of the pain points for consumers weren't great, as grocery prices picked up a bit again to 4.4% year over year from 4.1%, with fresh vegetables the issue there, while rent also ticked up to 4.2% versus 3.9%.
Looking ahead to next month's report, BMO said inflation already has two strikes working against it and is heading for a higher headline rate. First, base effects were poised to seriously lift it in any event, as the consumer carbon tax was removed on April 1, 2025. Second, even with some pullback recently, and the federal gas tax cut -- effective this Monday -- gasoline prices are still poised to rise about 7% from March's average level.
Together, this is expected to lift overall inflation a bit above 3% next month, said BMO. However, it added, depending on where oil prices go and how long the Strait of Hormuz remains closed, it's possible April will mark the high-water point for inflation this year -- with heavy, heavy emphasis on "possible."
In summary, March's inflation could have been worse, according to BMO. Much as other major economies posted a significant pop in headline inflation, the record rise in gasoline prices lifted Canada's inflation rate significantly last month, it noted. However, it said, the picture for underlying inflation was a bit better than expected, and continues the recent pattern of steadily moderating core inflation trends.
BMO's view is that if it weren't for the Iran conflict, the discussion would currently be revolving around the strong possibility of BoC rate cuts, not hikes. March's CPI reinforces that opinion, it added.