Markets are

paring back their bets for a rate hike

after the

consumer price index

(CPI) accelerated to 2.4 per cent year over year in March from 1.8 per cent in February, mostly on higher gasoline prices.

Inflation

came in lower than the 2.6 per cent economists were expecting despite gasoline prices jumping 21 per cent from February.

Bets for rate hikes in Canada rose when the United States and Israel initially attacked Iran on Feb. 28 to at least two 25-basis-point hikes in 2026 due to fears that inflation was headed for a post-pandemic repeat. However, bets have since receded and were wavering between one 25-basis-point hike this year and less than one hike.

Here’s what economists think the inflation data means for the

Bank of Canada

as it considers its next rate announcement on April 29.

‘Pain points’: BMO

“Core (inflation) was milder than expected, helping hold the overall inflation rate a bit below consensus expectations,” Douglas Porter, chief economist at

Bank of Montreal

, said in a note.

He said the Bank of Canada’s preferred measures of core CPI median and trim, respectively, held “steady” at 2.3 per cent year over year and slowed to 2.2 per cent. A measure of inflation that strips out food and energy was a bit less than two per cent.

But inflation boosters and subtractors were “lopsided,” Porter said.

The five biggest gainers fell victim to higher energy prices, including gasoline, travel tours, airfares, fuel oil and fuel for RVs. Drags on inflation included telephone services, auto insurance, furniture, candy and mortgage interest costs.

“Having said that, two of the pain points for consumers were not great, as grocery prices picked up a bit again,” he said.

Groceries accelerated to 4.4 per cent year over year from 4.1 per cent, while rent increased to 4.2 per cent from 3.9 per cent.

Porter expects inflation in April to jump above three per cent, with gasoline prices posting a seven per cent increase despite the elimination of the federal excise tax, which went into effect on Monday and is expected to shave 10 cents off per litre at the pumps. Also, the carbon tax was dropped last April and that will boost inflation.

“Our considered view is that if it were not for the conflict with Iran, the discussion would currently be revolving around the strong possibility of Bank of Canada rate cuts, not hikes,” he said. “This report reinforces that opinion.”

‘Light is green’: Rosenberg Research

“Tiff Macklem can hum and haw all he wants about his own personal inflation fears, but as the Bank of Canada fiddles,

the economy burns

,” David Rosenberg, president of

Rosenberg Research & Associates Inc.

, said in a note.

The CPI rose 0.9 per cent month over month, falling short of the average estimate of 1.1 per cent. Seasonally adjusted, he said inflation was “flat as an ice hockey surface” and has been for the past three months.

Key for Rosenberg is the traditional core inflation measure, which excludes food and energy. It came in at 1.9 per cent year over year, which is less than the Bank of Canada’s inflation target of two per cent.

Another key was decelerating housing inflation, which slowed “on a seasonally smoothed basis” to 0.7 per cent year over year — a 12-year low — from 3.8 per cent.

He said the economy is suffering from an output gap and a weak labour market that hasn’t produced any net full-time positions since mid-2025.

“The light is green for the Bank of Canada to resume its easing cycle once the U.S.-Iran war finally does end, and a red light has now been established for any policy tightening, which the bond market had recently and we believe mistakenly started to price in weeks ago,” he said.

‘Weighed down’: KPMG

“The echoes of the current commodity price squeeze are still yet to be felt,” Ali Jaffery, chief economist at

KPMG Canada

, said in a note. “The pass-through of higher commodity prices and further supply disruptions into core inflation will pick up over the coming months, although how much will depend on the intensity and duration of the current conflict.”

He said conditions were very different the last time Canada suffered a severe inflation spike, and they included supply chain snarls, a major boost to government spending and an oil shock from Russia’s war against Ukraine. That forced central banks to hike interest rates to cool inflation.

This time, oil prices are feeding into a sluggish Canadian economy that Jaffery said is being “weighed down” by U.S. tariffs and slowing population growth. Also, inflation is sitting “roughly” at the Bank of Canada’s two per cent target.

“In that context, our expectation is that the pass-through of higher commodity prices into underlying inflation in Canada will likely be modest, assuming the conflict winds down soon,” he said.

Jaffery expects businesses will absorb any cost increases due to energy prices to protect market share and that should help guard against rising inflation expectations, which the Bank of Canada will be on the lookout for.

He also doesn’t expect inflation to enter the range of four per cent to six per cent, which would push up businesses’ inflation expectations.

KPMG is looking for the Bank of Canada to keep rates on hold for the rest of the year, assuming the Middle East conflict winds down in the next few weeks.

• Email: gmvsuhanic@postmedia.com

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