Canada: Core inflation trend cools as energy lifts headline – RBC

Royal Bank of Canada (RBC) economist Abbey Xu notes that Canadian headline Consumer Price Index (CPI) rose to 2.4% year-over-year, mainly on higher energy prices linked to conflict in the Middle East and tax distortions. However, Bank of Canada (BoC) core measures, including CPI-trim and CPI-median, show easing underlying inflation. Xu argues this gives the Bank of Canada flexibility given a still soft economic backdrop.

Core measures signal easing inflation trend

"The rise in headline CPI growth to 2.4% year-over-year 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."

"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."

"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."

"While some components, particularly grocery prices and rent, are still running well above (~4%) year-ago levels, the March report reinforces our 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."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)