Ralph Bostic, who recently retired as president of the Atlanta Fed, was known for drawing parallels between birdwatching and central banking—both require making decisions with incomplete data. That challenge is especially relevant in the current environment, as incoming inflation data continues to send mixed signals about underlying price dynamics.
March 2026 CPI data confirms a significant reacceleration in headline inflation across North America, driven almost entirely by a surge in oil prices stemming from geopolitical conflict in the Middle East. While headline numbers have surged, core inflation (excluding food and energy) remains more contained, suggesting the current inflationary pressure is primarily an energy-driven shock rather than a broad-based resurgence of demand-pull inflation.
Canada CPI (Released April 20, 2026)
- Headline CPI: Rose to 2.4 per cent year-over-year (y/y) in March, up significantly from 1.8 per cent in February.
- Monthly Move: CPI rose 0.9 per cent month-over-month (m/m), the highest monthly spike in 14 months.
- Oil Prices Impact: Gasoline prices surged 21.2 per cent in March alone, the largest monthly increase on record, directly lifting the headline rate.
- Core Inflation: Core metrics (CPI-trim and median) remained relatively muted, rising 2.5 per cent y/y. The “excluding gasoline” index rose 2.2 per cent y/y, slower than February’s 2.4 per cent, indicating the price surge was concentrated in energy.
- Housing Component: Shelter inflation continued to rise, up 1.7 per cent y/y, showing sustained upward pressure and edging higher from 1.5 per cent in February.
U.S. CPI (Released April 10, 2026)
- Headline CPI: Jumped to 3.3 per cent y/y in March, up from 2.4 per cent in February, hitting its highest level in nearly two years.
- Monthly Move: Headline CPI increased 0.9 per cent m/m.
- Oil Prices Impact: Energy prices surged 10.9 per cent m/m, with gasoline accounting for roughly 75 per cent of the total monthly increase in headline inflation.
- Core Inflation: Core CPI (excluding food and energy) came in softer than anticipated, rising 2.6 per cent y/y and 0.2 per cent m/m, indicating that underlying inflationary pressures are not yet accelerating at the same pace as energy prices.
- Housing Component: Shelter costs rose 0.3 per cent m/m, with rent of primary residence decelerating slightly, suggesting that while housing inflation remains high, its contribution to overall inflation is easing compared to last year.
This data gives the Bank of Canada some breathing room to assess the impact of the war in the Middle East. However, even if the conflict is resolved in the near term, the challenge will be what risk premiums become embedded in oil prices going forward, and how much the Bank can look through this “supply shock.” Economist Andrew Spence highlights the challenge of a negative supply shock in a recent note. He argues that such shocks create a “toxic combination” of weak growth, rising inflation, and higher long-term rates as markets reprice inflation risk. For countries with high debt ratios, the concern is that negative debt dynamics can emerge with alarming speed. He points to Canada in the 1990s, when rising interest rates coincided with weak GDP growth. In such scenarios, debt momentum adds to the debt ratio, while primary deficits widen quickly. Currency depreciation helped ease the adjustment, but it still took more than five years to get the economy back on track.
Spence also notes that the U.S. benefits from its reserve currency status and the dominance of the U.S. dollar in global payments. At the same time, investors appear to be showing a preference for supranational issuers that borrow in U.S. dollars over debt issued directly by the U.S. While this provides some marginal relief for investors, his broader point is that the global economy is not well positioned for a significant fiscal contraction.
Certainly, economics is the “dismal science,” but this is a scenario the Bank of Canada will need to take into consideration.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Desjardins’ latest analysis shows that while Canada’s housing affordability has improved from 2023 lows, the recovery is already losing momentum. Conditions are strained, particularly in Ontario and British Columbia, where affordability pressures remain most severe.
The report’s outlook is cautious, if not pessimistic, as mortgage rates face renewed upward pressure and demand stays firm in lower-cost provinces. A new Ontario policy package may ease costs for new builds, but its broader impact is likely limited.
Get the full breakdown in this week’s Housing Affordability Watch.
Read the full analysis: The Long Road to Housing Affordability
Independent Opinion
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