Canada’s CPI rose to 2.4% year-on-year in March, with prices up 0.9% month-on-month. The result was 0.2 percentage points below the market expectation of 2.6% and below TD Securities’ 2.5% forecast.
The rise in headline CPI was linked to higher oil prices. Core measures were described as steady, with CPI excluding food and energy edging down slightly.
Three-month annualised core inflation rates were reported as still below target. The Bank of Canada has indicated it will look through short-term inflation spikes.
Rate moves were limited after the release. Yields were about 1 basis point from pre-release levels, while Canada–US spreads were 1–2 basis points tighter.
Market pricing was described as needing more similar inflation readings to reverse earlier expectations seen in March. TD Securities set out a preference for long positions in 2-year bonds and for June/December curve flattener trades.
The article notes it was produced with the help of an AI tool and reviewed by an editor.
The March Consumer Price Index report showing a 2.4% year-over-year increase should be seen as a green light for dovish positioning. While headline inflation did accelerate, this was widely expected due to the recent surge in WTI crude oil prices, which climbed over 15% in the first quarter of 2026. The real story is the softness in core measures, which gives the Bank of Canada cover to remain patient.
This data reinforces the Bank’s message to look through temporary, energy-driven price spikes. We saw a similar pattern in late 2025 when a brief jump in gasoline prices did not derail the Bank’s increasingly cautious tone. With three-month annualized core inflation rates still tracking below the 2% target, there is little internal pressure for the BoC to consider a more aggressive stance.
The market reaction has been muted so far, which presents an opportunity for traders in the coming weeks. The modest tightening in Canada-U.S. spreads suggests the market is only slowly digesting that its rate hike expectations for later this year were too aggressive. This creates a favorable environment for trades that bet on a reversal of that hawkish sentiment.
Therefore, we maintain a bias toward being long 2-year government bonds, which will benefit as the market prices out the odds of further rate hikes in 2026. Additionally, yield curve flatteners, particularly comparing the June and December contracts, remain attractive. These positions are designed to profit as the market walks back its overly hawkish pricing for the second half of the year.
