Economists warn of an energy driven “run of inflation” while others point to weak core data and a tired labour market
Gasoline just logged its biggest monthly price jump on record – and economists disagree on whether that shock will simply wash through or keep inflation uncomfortably high.
Annual inflation rose to 2.4 percent in March from 1.8 percent in February as surging fuel costs drove headline prices higher, according to Statistics Canada.
The agency said gasoline prices increased 5.9 percent year over year and 21.2 percent month over month, the largest monthly rise on record. Energy prices overall rose 3.9 percent year over year after a 9.3 percent decline in February and jumped 13.1 percent on the month.
Reuters said analysts had expected inflation to reach 2.6 percent year over year and 1.1 percent month over month, so the figures came in below consensus.
BNN Bloomberg reported that Pedro Antunes, chief economist at Signal 49 Research, expects a sustained run of inflation through March and April.
He said gasoline prices in April are roughly 30 percent higher than in February and argued that oil shocks show up at the pump first, then in transportation costs, before inflation spreads more broadly through the economy.
The energy shock reflects supply disruption from the conflict.
Reuters said the war in Iran, which began at the end of February, has disrupted crude shipments through the Strait of Hormuz, removing nearly a fifth of global supply.
BNN Bloomberg reported that oil prices hit their highest level since 2022, peaking near US$120 per barrel in March, and said American crude traded over $85 per barrel on Monday.
Some economists, however, emphasise that core measures remain subdued even as energy spikes.
The Financial Post reported that Douglas Porter, chief economist at Bank of Montreal, said “core (inflation) was milder than expected,” which kept headline inflation “a bit below consensus expectations.”
He said the Bank of Canada’s preferred core gauges, CPI‑median and CPI‑trim, were steady at 2.3 percent year over year before easing to 2.2 percent, and that inflation excluding food and energy ran “a bit less than two percent.”
He called the inflation “boosters and subtractors” “lopsided,” with gasoline, travel tours, airfares, fuel oil and fuel for RVs leading the gains, while telephone services, auto insurance, furniture, candy, and mortgage interest costs dragged inflation lower.
He also noted that grocery inflation quickened to 4.4 percent from 4.1 percent and rent rose to 4.2 percent from 3.9 percent.
Porter argued that “if it were not for the conflict with Iran, the discussion would currently be revolving around the strong possibility of Bank of Canada rate cuts, not hikes,” and said the March data “reinforces that opinion.”
According to the Post, he expects April inflation to move above 3 percent, with gasoline prices up about 7 percent even after the federal excise tax was removed, and said the carbon tax cut last April will also boost the year‑over‑year comparison.
David Rosenberg, president of Rosenberg Research & Associates Inc., took an even more dovish view.
The Post reported that he said the CPI rose 0.9 percent month over month, short of the 1.1 percent consensus, and described seasonally adjusted inflation as “flat as an ice hockey surface” over the past three months.
He noted that the traditional core measure, which strips out food and energy, ran at 1.9 percent year over year, “less than the Bank of Canada’s inflation target of two percent,” and that housing inflation slowed on a seasonally smoothed basis to 0.7 percent year over year, a 12‑year low, from 3.8 percent.
He argued that an “output gap and a weak labour market that hasn’t produced any net full‑time positions since mid‑2025” are weighing on the economy.
In his view, “the light is green for the Bank of Canada to resume its easing cycle once the US-Iran war finally does end,” while a “red light” now stands in the way of any rate hikes.
Ali Jaffery, chief economist at KPMG Canada, focused on how far the commodity shock will spread through the economy.
According to the Financial Post, he warned that higher commodity prices and supply disruptions will feed more clearly into core inflation “over the coming months,” and said “the echoes of the current commodity price squeeze are still yet to be felt,” with the impact depending on “the intensity and duration of the current conflict.”
He contrasted today’s environment with the last major inflation spike, arguing that oil is now hitting “a sluggish Canadian economy” already “weighed down” by US tariffs and slower population growth, while inflation is “roughly” at the Bank of Canada’s 2 percent target.
Jaffery expects many firms to absorb energy‑driven cost increases to defend market share, limiting second‑round effects, and said he does not foresee inflation rising into the 4 percent to 6 percent range.
KPMG expects the Bank of Canada to leave rates unchanged for the rest of the year if the Middle East conflict eases in the near term, as per the Post.
TD Bank Group senior economist Andrew Hencic also pointed to a relatively calm core backdrop.
BNN Bloomberg reported that he described core measures excluding food and energy as “relatively soft” in March and called the month “a transition period before the full impact of rising energy prices is felt.”
In his view, changing interest rates now “could be premature” because “the central banks can’t do much in terms of the way of gasoline prices,” and it is “probably appropriate for them to look through this first phase for the Bank of Canada,” which “means staying pat for the time being.”
BNN Bloomberg said food inflation slowed to 4 percent in March from 5.4 percent in February, mainly because a temporary tax holiday dropped out of the annual comparison.
Statistics Canada reported that prices for food purchased from stores rose 4.4 percent year over year and fresh vegetables jumped 7.8 percent, with strong gains in cucumbers, peppers and celery.
BNN Bloomberg said Pedro Antunes warned that food inflation “has not eased at all yet,” linking disruptions to natural gas shipping in the Strait of Hormuz to severe stress in the global fertiliser market.
He said higher global fertiliser prices also push up domestic costs and are “really hurtful to lower income households in particular.”
Reuters noted that Canada’s inflation has remained benign for well over a year, hovering around the mid‑point of the Bank of Canada’s 1 percent–3 percent target.
The outlet also said governor Tiff Macklem is “not concerned about a short‑term spike in inflation expectations.”
The Financial Post reported that market odds of rate hikes jumped to at least two 25‑basis‑point moves in 2026 after the United States and Israel attacked Iran on February 28 but have since fallen back to about one hike or less.
BNN Bloomberg added that borrowing costs linked to bond yields have already moved higher in anticipation of tighter policy, and Antunes said “we’re already feeling the pinch of this inflation impact on essentially, financing costs, debt financing costs.”
