The Canadian Consumer Price Index (CPI) accelerated to 2.4% year-on-year in March, primarily driven by higher oil prices, according to TD Securities analysts [1]. Despite this increase, the headline inflation missed market expectations by 0.2 percentage points, with the market anticipating 2.6% and TD forecasting 2.5% [1]. Prices rose 0.9% month-on-month, but core inflation measures remained subdued, with ex-food/energy components falling slightly and the three-month annualized rates of core inflation still below target [1].
TD Securities views the CPI print as dovish and consistent with the Bank of Canada's (BoC) guidance to look through temporary inflation spikes. The BoC has signaled a willingness to remain cautious and not react to near-term volatility in inflation data [1]. Despite the downside surprise in the CPI figures, market reaction was muted, with yields staying within a basis point of pre-release levels and Canada-US spreads tightening only 1-2 basis points [1].
Analysts at TD Securities expect that it will take several similar CPI prints to fully convince the market to recover from the peak pricing seen in March. They maintain a bias toward long positions in 2-year bonds and Jun/Dec flatteners, noting that hawkish pricing for 2026 is being walked back by the market [1].
Overall, the subdued core inflation and the BoC's cautious stance suggest that the central bank is unlikely to shift policy in response to this CPI print, and current market momentum is expected to persist [1].
CONCLUSION
The Canadian CPI for March came in below market expectations, reinforcing the Bank of Canada's dovish and cautious approach. Market reaction was limited, and analysts expect continued momentum in bond trades as hawkish pricing is gradually unwound. The outlook remains steady unless future CPI prints show a sustained change.