Canada: Inflation Shifted into a Higher Gear in March Due to Gasoline Prices

Headline inflation increased sharply in March, with gasoline prices being a major driver of the acceleration. Due to the conflict in the Middle East, gasoline prices rose 21.2% month-over-month, marking the largest monthly gain on record. That said, this increase was muted on a year-over-year basis (5.9% y/y) by the removal of the consumer carbon tax. Headline inflation would have been about 0.4 percentage points higher in March, at 2.8% y/y, the consumer carbon tax was not eliminated (graph 1). As of April 2026, the removal of the consumer carbon tax will no longer contribute to the 12‑month change in prices. Growth in the price of food purchased from stores accelerated in March (4.4% y/y), led by fresh vegetables (7.8% y/y), the largest gain since August 2023.

Goods prices jumped to 2.1% y/y from 0.5% in February, largely driven by higher energy prices (graph 2). At the same time, services prices slowed to 2.5%, compared to 2.7% in the prior month. The GST/HST holiday from temporarily lowered prices for some goods and services but boosting year‑over‑year inflation afterward. This effect had rolled off by March 2026, helping keep inflation contained. Restaurant prices slowed to 3.2%, from 7.8% in February despite the increase in food inflation.

Turning to underlying CPI inflation, the average of the BoC’s preferred measures of core inflation—CPI median and trimmed mean—was unchanged in March at around 2.3% y/y. Total CPI inflation excluding food and energy fell to 1.9% from 2.0% in February. Total CPI inflation excluding the eight most volatile components moved up to 2.5% in March from 2.3% in the prior month. Meanwhile, its annualized seasonally adjusted 3‑month moving average declined from 2.3% in February to 1.5% in March (graph 3). In contrast, when this same calculation is applied to the average of the Bank’s preferred measures, it increased from 1.0% in February to 1.6% last month. Taken together, this suggests that higher energy prices are not yet materially spilling over into underlying inflation.

Upward pressure from gasoline prices were somewhat offset by the removal of the consumer carbon tax and base-year effects of the GST/HST holiday. Still, the conflict in the Middle East poses a major upside risk to price growth, albeit modestly as the federal reduction in gas taxes takes hold in April. As our latest analysis External link. suggests, energy prices are likely to remain elevated throughout 2026. That said, the upcoming Canada-United States-Mexico Agreement (CUSMA) review External link. remains a significant downside risk to the overall outlook. Amid the uncertain and offsetting inflationary effects, the Bank is expected to stay on the sidelines for the remainder of the year.