Canada: Energy lifts CPI, BoC focus on core – TD Securities

TD Securities’ Senior Canada Economist Robert Both expects Canadian Consumer Price Index (CPI) inflation to rise to 3.1% year-on-year in April, driven mainly by higher energy and food prices and base effects from last year’s carbon tax changes. Core measures (CPI-trim/median) are projected near 2.1–2.2%, leaving the Bank of Canada (BoC) focused on underlying inflation rather than the temporary headline overshoot into the June policy decision.

Energy shock lifts headline inflation

“We look for CPI inflation to firm by 0.7pp to 3.1% y/y in April as prices rise by 0.6% m/m, underpinned by another sharp increase for gasoline and other energy products. Base effects from eliminating carbon taxes in April 2025 will also add to the acceleration on a year-ago basis.”

“Higher oil/fertilizer prices will also keep upward pressure on food and airfares, but we do not expect broad strength outside of these two components. Core inflation is forecast to edge lower by 0.1pp to 2.1/2.2% for CPI-trim/median as 3m (saar) rates accelerate 0.5pp to 2.1%.”

“Our forecast for 3.1% y/y would leave headline CPI tracking well above BoC projections from the April MPR, but we expect the BoC to look through this and remain focused on core inflation heading into the June policy decision.”

“With energy prices driving most of the strength in April CPI, core inflation measures should see more modest gains with CPI-trim/median forecast to rise 0.2% m/m (0.23% unrounded) which would see the BoC’s preferred measures slow to 2.1% y/y on a large base-effect from 2025.”

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