Data from the first month of Iran war show impacts
Canada's consumer price index (CPI) rose 2.4 per cent in March, up from 1.8 per cent in February, according to a release from Statistics Canada on Monday.
The headline pace of CPI increased largely due to a 3.9 per cent increase in year-over-year energy prices, driven by the US-Israeli war with Iran and the subsequent closure of the Strait of Hormuz. Energy prices rose 13.1 per cent on a monthly basis.
Gasoline, specifically, saw a 5.9 per cent increase year over year, with 21.2 per cent increases on a monthly basis, which represents the largest price increase for gasoline on record. Year over year increases were muted somewhat in comparison to March of 2025 as data from that month still includes the now-removed consumer carbon tax. Going forward, that tax will no longer be reflected in year-over-year data.
Groceries continued to outpace headline CPI, with food purchased from stores rising 4.4 per cent year-over-year, up from 4.1 per cent in February. Fresh vegetable prices increased 7.8 per cent in March.
The end of the 2025 holiday HST break also impacted data. Price increases due to the reintroduction in HST fell out of the year-over-year data, putting downward pressure on CPI.
Inflation spike's implications for BoC decision
The reported rise in inflation comes ahead of another Bank of Canada (BoC) decision next week. Despite the headline CPI number now rising above the BoC's target of two per cent, James Learmonth doesn't believe that it will prompt an immediate hike by the central bank. The Co-CIO and Portfolio Manager at Harvest ETFs explained that because this energy price shock is a supply issue, raising interest rates may have the opposite effect on inflation. He noted, too, that despite record increases in gasoline prices the overall CPI print came in slightly lighter than expected and that, for now, higher energy costs don't seem to be impacting CPI trim numbers.
"I do think from an inflation perspective only, [the BoC] will probably look at the trim and the median numbers as well and take that into consideration where again the inflation seems to be relatively benign. We're not seeing a rapid acceleration in inflation in those trim numbers," Learmonth says. "Central bank policy or monetary policy really has more impact on the demand side of the economy and is not really an effective tool in dealing with supply shocks and what's causing this spike up in energy prices is a supply shock."
