Canadian Inflation Surges to 2.4% Y/Y on Oil Price Shock

The headline inflation rate in Canada surged as expected with the War in Iran and the resulting oil price shock. The inflation rate hit 2.4%, up from 1.8% in February, tying for the highest in a year but a bit below market expectations of 2.5%. The surge reflected the initial impact of the war in the Middle East on Canadian consumer prices, as disruptions to tankers from the Persian Gulf triggered energy shortages worldwide. The consumer energy inflation swung to 3.9% from the deflation rate of 9.3% in the previous month, enough to raise transportation inflation to 3.7% (vs -0.8% in February). In turn, prices accelerated for shelter (1.7% vs 1.5%) and recreation and education (2.6% vs 0.5%). Meanwhile, base effects from the reintroduction of GST/HST taxes continued to impact food inflation, which fell to 4% from the 5.4% in February. The CPI rose 0.9% from the previous month, driven by a 21.2% surge in gasoline prices. Excluding gasoline, the CPI rose at a slower year-over-year pace in March (+2.2%) than in February (+2.4%). The CPI was up 0.9% month-over-month in March. On a seasonally adjusted monthly basis, the CPI increased 0.5%.

Higher energy prices drive up inflation

Energy prices rose 3.9% on a year-over-year basis in March, after decreasing 9.3% in February. On a monthly basis, energy prices rose 13.1% in March.

Higher gasoline prices were the primary driver of the year-over-year acceleration in the CPI, as consumers paid 5.9% more for gasoline in March than in the same month the previous year. Prices rose 21.2% in a month, the largest monthly gasoline price increase on record, driven by a supply shock from the conflict in the Middle East. However, this monthly effect was muted year over year due to the comparison with prices from March 2025, which included the since-removed consumer carbon levy. The removal of the consumer carbon levy will no longer impact the 12-month movement as of April 2026, and this will be reflected in next month’s CPI release.

Moderating the acceleration in energy prices were lower prices for natural gas (-18.1%), which are largely dependent on North American supply and therefore more insulated from global price changes.

Prices for food purchased from stores rose 4.4% on a yearly basis in March, after increasing 4.1% in February.

On a year-over-year basis, prices for fresh vegetables increased 7.8% in March, the largest increase since August 2023 (+8.7%), after rising 0.5% in February. Cucumbers, peppers and celery all had notable price growth in March, due in part to tighter supplies related to adverse growing conditions in producing countries.

Core inflation measures also came in below expectations, with core inflation hitting 2.0% and the CPI trimmed-mean 2.2% from a year ago, the slowest pace in five years, amid weak housing resales and smaller rent price increases.

Bottom Line

It is very good news that the inflation backdrop softened last month, before the onslaught of the Iran war and the oil price shock. Some of the weaker base effects will be evident in the March CPI data as well, mitigating the impact of soaring energy and commodity prices on this month’s headline inflation number.

The Bank of Canada and the U.S. Federal Reserve will remain on the sidelines at the next statement date on April 29, as a relatively quick end to the Iran war would keep a lid on inflation. President Trump has asked NATO countries to send warships to the Middle East to help open the Strait of Hormuz. The sooner the war ends, the sooner the oil price shock will dissipate. Given the uncertainty, the central banks will do best to keep their powder dry this time around, particularly given that labour markets in both countries have weakened substantially.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Remains Weak in March 

The number of home sales recorded over Canadian MLS® Systems was virtually unchanged (-0.1%) on a month-over-month basis in March 2026.

“Home sales activity remained at lower levels in March, as rising global economic uncertainty, along with a mid-month jump in fixed mortgage rates tied to incoming higher inflation, piled on to an already shaky economic start to the year,” said Shaun Cathcart, CREA’s Senior Economist. “2026 is still expected to see a modest amount of upward momentum in sales and a stabilization in prices as some pent-up first-time buyer demand enters the market, but the forecast for the year has had to be revised downward. The timing of higher mortgage rates, along with the perception they may be temporary, could keep would-be buyers away at the most active time of year – April, May, and June – as they wait for rates to come back down.”

Clearly, the War in Iran, along with its unprecedented oil price shock, has spooked households and businesses, weakening overall economic activity, especially housing, which is highly interest-rate sensitive. Interest rates have risen sharply since the war began in late February, and it is uncertain how long higher oil prices will last. The reopening of the Strait of Hormuz is highly tentative, and it will take weeks, if not months, to return oil prices to pre-war levels.

The war’s timing couldn’t be worse, as it damages the usually strong spring home-selling season.

New Listings

New listings edged down a slight 0.2% on a month-over-month basis in March 2026. Lower monthly sales numbers so far in 2026 could in part be due to the fact new supply is running at the lowest levels since mid-2024.

With new supply and sales both little changed in March, the national sales-to-new listings ratio remained at 47.8%. The long-term average for the national sales-to-new listings ratio is 54.8%, with readings generally between 45% and 65% that are consistent with balanced housing market conditions.

“While the interest rate situation has recently changed, what could be a challenge for a buyer looking for a fixed rate mortgage may also be seen as more choice and less competition for those choosing a variable rate,” said Garry Bhaura, CREA’s 2026-2027 Chair. “Spring tends to be a busier time of year for the housing market, even if it may not be quite as busy as we were expecting not so long ago.”

There were 167,524 properties listed for sale on all Canadian MLS® Systems at the end of March 2026, up just 1% from a year earlier and 10.6% below the long-term average for that time of the year. Overall supply has generally been declining since May of last year.

There were five months of inventory on a national basis at the end of March 2026, unchanged from January and February and right in line with the long-term average for the measure. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) edged down 0.6% on a month-over-month basis in February, not a small decline but smaller than in January.

The non-seasonally adjusted National Composite MLS® HPI was down 4.8% compared to February 2025.

Bottom Line

With geopolitical tensions mounting and the tenuous ceasefire in Iran, potential homebuyers have postponed their purchase decisions. While there remains considerable pent-up demand, and home prices in many regions have fallen sharply, especially in Ontario, which was hardest hit by the tariffs last year and the ongoing condo supply glut. These issues are unlikely to be resolved in the near term so that housing market weakness will remain a drag on overall economic activity.

Compounding these concerns is the surge in oil prices. Gasoline prices–a very visible component of consumer spending–have skyrocketed, causing supply disruptions in nitrogen fertilizer, plastics, aluminum and helium. Price pressures will no doubt mount, leading central banks to be concerned about potential stagflation. Next Monday, we will see the CPI data for March. At this point, the Bank of Canada is likely to continue to “look through” the price pressures, hoping the war will end very soon.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian employment rose by a moderate 14,100 in March after a tough start to 2026. Given that employment had plunged by a combined 108,700 positions in the first two months of the year, today’s data are far from strong, especially when full-time jobs actually nudged down a bit further last month. Still, even a small plus sign is a positive, as is the stable jobless rate, which held at 6.7% (a tick lower than a year ago).

The Canadian Jobs Report Showed a Small Gain in Net New Employment with the Unemployment Rate Steady at 6.7%

Confusion over a fragile ceasefire continued yesterday as Israel ramped up attacks on Lebanon. The Strait of Hormuz–a key oil shipping route whose closure has sent oil prices skyrocketing in recent weeks–reportedly remained closed. Normally, the Strait accommodates roughly 130 ships a day.

Tehran’s control of the Strait choked off a globally important conduit for oil and gas, as well as the flow of vital materials such as aluminum, helium, fertilizer, and oil components used to make many plastics. Canada is rich in crude and critical minerals, a growing power in liquefied natural gas, and an important supplier of fertilizer and aluminum to the US, though Trump’s tariffs on foreign metals have disrupted the latter industry.

A chunk of global oil production has been taken offline, which could have long-term implications, as the disruption to the free passage of ships through the Strait could linger. Many analysts believe it will take weeks to restore traffic in the Strait to normal levels. These supply disruptions are reminiscent of our COVID experience.

The US sees itself as the enforcer of the free passage of ships in international waters worldwide. If the US backs away from underpinning the free passage of goods, supply disruptions will accelerate.

It was with this backdrop that Statistics Canada released this morning’s Labour Force report. Employment was little changed in March (+14,100; +0.1%) following a cumulative decline of 108,700 (-0.5%) over the first two months of 2026. The number of full-time and part-time workers both showed little variation in March.

On a year-over-year basis, employment was up by 87,000 (+0.4%) in March, largely reflecting gains over the final four months of 2025.

The employment rate—the proportion of the population aged 15 and older who are employed—was unchanged at 60.6% in March, following a cumulative decline of 0.3 percentage points in January and February. The employment rate in March was just above the recent low of 60.5% recorded in August 2025 and was down 0.3 percentage points year over year.

In March, there was little variation in the numbers of public- and private-sector employees and self-employed workers. On a year-over-year basis, the number of employees grew at a faster pace in the public sector (+1.2%) than in the private sector (+0.6%).

The unemployment rate was unchanged in March at 6.7%, following a 0.2-percentage-point increase in February. The unemployment rate was below the peak of 7.1% recorded in August and September 2025 and was little changed year over year. In comparison, the unemployment rate averaged 6.0% from 2017 to 2019, before the COVID-19 pandemic.

Among people who were unemployed in February, 15.2% found work in March. This was similar to the rate recorded in the same months in 2025 (14.7%) but was below the pre-pandemic average of 19.1% for the same months from 2017 to 2019 (not seasonally adjusted). This indicates that higher unemployment rates relative to the pre-pandemic period are mostly driven by slower hiring, rather than by increased layoffs.

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—was unchanged at 64.9%. On a year-over-year basis, the labour force participation rate was down 0.4 percentage points.

Average hourly wages surged unexpectedly to a 4.7% y/y pace, the fastest in more than a year and well up from 3.9% the prior month. Wages can be a volatile series, but that’s a big bounce, and a move that the Bank of Canada will be watching closely. Meantime, total hours worked edged up 0.2% m/m after a deep dive in February. That still left hours worked down by 0.4% annually for all of Q1. The current consensus forecast for real GDP growth of 1.5% now hinges on an improvement in productivity growth.

Employment rose in ‘other services’ (+15,000; +1.9%) in March, offsetting a similar-sized decline in February. Employment in this industry, which includes repair and maintenance services, was little changed compared with 12 months earlier.

Employment change by industry, March 2026

Employment in natural resources also increased (+10,000; +3.0%), with nearly half of those gains coming from Alberta (+4,500; +3.2%). On a year-over-year basis, employment in this industry was little changed at the national and Alberta levels.

On the other hand, employment in finance, insurance, real estate, rental and leasing fell by 11,000 (-0.8%) in March, the first significant monthly decline since November 2023.

Although employment in health care and social assistance was little changed in March, it was up 94,000 (+3.3%) compared with 12 months earlier, the largest employment growth among industries. Over that same period, the largest employment decline among industries was in manufacturing (-44,000; -2.4%).

Bottom Line

In other news, the US CPI for March, released this morning, surged the most in nearly four years as the war with Iran sent gasoline prices skyrocketing. The CPI spiked 0.9% from February. Year-over-year inflation increased to 3.3%, the strongest pace since 2024. A record rise in gasoline prices was responsible for nearly three-quarters of the monthly advance. Core inflation rose at a slower 0.2% pace monthly pace.

The data underscore how the war in the Middle East is beginning to ripple through the global economy, worsening households’ affordability woes. Gas prices have already surged at the pump, and, according to Bloomberg News, service providers, including Delta Air Lines and the US Postal Service, have warned of price hikes ahead.

The Canadian CPI data for March will be released on Monday, April 20, before the April 29 Bank of Canada announcement. The data will undoubtedly show a spike in price pressures, but given the geopolitical uncertainty regarding how long the disruption to oil tanker traffic will last, the Bank of Canada is likely to keep its powder dry at the next meeting. There is a real risk of stagflation, so inaction is the likely outcome, for fear of worsening tepid economic growth in response to what everyone hopes is a temporary surge in oil prices.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca