Canada’s annual inflation rate surged to 2.4 percent in March, driven by soaring fuel prices, particularly due to the impact of the conflict in Iran. The cost of energy, notably gasoline, spiked by 3.9 percent compared to the previous year, with a remarkable 21.2 percent monthly increase in gasoline prices recorded in March, the highest on record.
Statistics Canada highlighted that the inflationary effect would have been even more pronounced if the comparison had not included prices from March 2025, which still factored in the consumer carbon tax that was removed in April of the following year. Transportation costs increased by 3.7 percent year over year in March, largely influenced by the rise in fuel expenses.
Food prices at stores also saw a significant uptick, rising by 4.4 percent annually, up from 4.1 percent in the previous month. Notably, the prices of fresh vegetables jumped by 7.8 percent year over year in March, attributed to challenging growing conditions for cucumbers, peppers, and celery.
Economists had anticipated the surge in gas prices due to the oil crisis in the critical Strait of Hormuz, which disrupted about a fifth of the global oil supply, leading to fuel shortages and price hikes globally. CIBC economist Andrew Grantham remarked that the inflation spike in March was expected, emphasizing the uncertainty about the extent of the increase.
Grantham predicted further gas price increases in the upcoming month, potentially pushing inflation higher, but he expressed hope that the temporary suspension of the federal fuel excise tax, effective from Monday, could mitigate this impact in May. Excluding gas prices, the inflation rate would have reached 2.2 percent, according to Statistics Canada.
Chief economist Douglas Porter of the Bank of Montreal pointed out that core inflation, excluding volatile factors like gasoline, was less severe than anticipated. The Bank of Canada is closely monitoring the March inflation data in preparation for its next interest rate decision on April 29, aiming to navigate through the initial inflationary surge linked to the Middle East tensions while preventing prolonged inflation from rising gas prices.