Canada’s headline Consumer Price Index (CPI) rose to 2.4% year-on-year. The increase was mainly linked to higher energy prices tied to conflict in the Middle East and to tax-related effects.
Bank of Canada core measures, including CPI-trim and CPI-median, pointed to easing underlying inflation. These measures exclude tax changes and volatile energy price swings.
Underlying Inflation Cooling
CPI-trim, CPI-median, and trim services excluding shelter averaged 1.7% on an annualised three-month rolling average basis. The share of products with larger-than-usual month-on-month price increases has been lower so far in 2026.
Some items, including grocery prices and rent, were still running at about 4% above year-ago levels. The March data indicates that higher oil prices may lift headline inflation in the near term without broadening price pressures.
The recent rise in headline inflation to 2.4% should be viewed as temporary, driven mostly by external energy shocks and tax effects. We see the Bank of Canada focusing on its own core measures, which have cooled to an average of 1.7% on a three-month annualized basis. This divergence, coupled with a soft economic backdrop, signals that the Bank is more likely to cut interest rates than to hold or raise them.
This creates an opportunity for traders to position for lower Canadian interest rates in the coming weeks. With the latest jobs report from early April 2026 showing the economy shed 15,000 jobs and the unemployment rate rising to 6.3%, the case for a rate cut at the June meeting is strengthening. Derivative strategies like buying options on CORRA futures or receiving fixed in interest rate swaps could prove profitable.
Trading Implications For Cad And Rates
Furthermore, this dovish outlook for Canada contrasts with the situation in the United States, where Federal Reserve officials remain cautious with their core inflation still hovering near 2.8%. This policy divergence is likely to put downward pressure on the Canadian dollar. Traders should consider strategies that benefit from a rising USD/CAD exchange rate, such as purchasing call options on the pair.
Looking back at how the Bank navigated the inflation spike in 2025, we know it prioritizes underlying trends over temporary headline volatility. The share of CPI components with unusually large price increases has been trending lower so far in 2026, reinforcing the view that the broader disinflationary trend is intact. This historical precedent supports the expectation that the Bank will look through the current headline figure.
