-- The rise in Canadian headline consumer price index growth to 2.4% year over year in March was primarily driven by higher energy prices due to conflict in the Middle East, but broader underlying inflation pressures showed further signs of easing under the surface, said RBC.
Year-over-year price growth also continues to be distorted heavily by tax changes, noted the bank after Monday's CPI data. The removal of the consumer carbon tax in most parts of the country in April last year means energy price increases from a year ago are lower than they otherwise would have been, and a slowing in food prices was largely due to the end of the GST/HST tax holiday a year ago in mid-February that had artificially lowered the price of restaurant meals a year ago.
In contrast, the Bank of Canada's own measures of core inflation, which exclude the impact of tax changes, as well as volatile swings in energy prices, remain consistent with cooling underlying inflation momentum, stated RBC.
CPI-trim, CPI-median and trim services excluding shelter averaged 1.7% on an annualized three-month rolling average basis. That marks a continuation of the gradual easing trend in underlying inflation pressures, and the share of products with larger-than-usual month-over-month price increases has been lower year-to-date in 2026, pointed out the bank.
While some components, particularly grocery prices and rent, are still running well above, at around 4%, year-ago levels, the March report reinforces RBC's view that recent increases in oil prices can push headline inflation higher in the near term but are unlikely to re-ignite broader inflation pressures.
The BoC will keep a close eye on inflation expectations, but slower core price growth measures leave the central bank flexibility to also keep an eye on what is still a soft economic backdrop with the unemployment rate still elevated, it added.