Pedro Antunes, chief economist at Signal 49 Research, joins BNN Bloomberg to discuss the latest Canadian CPI data. <\/p>\n
Canada\u2019s inflation rate accelerated in March due to a record surge in fuel costs, and economists warn that it is likely to get worse.<\/p>\n
The war in Iran sent gas prices soaring in March, and Canada\u2019s annual inflation rate rose to 2.4 per cent<\/a> from 1.8 per cent in February, according to Statistics Canada. The agency said March saw the highest monthly jump in gasoline prices on record, and without it, inflation would have been 2.2 per cent. <\/p>\n But gas prices are likely only going to go up higher from here, even though the inflation jump was lower than expected, says Pedro Antunes, chief economist at Signal 49 Research.<\/p>\n \u201cI think we\u2019re in for a run of inflation, not just in March, but in April as well,\u201d he says.<\/p>\n \u201cWe know that in April, gasoline prices are kind of averaging around 30 per cent above where they were in February.\u201d<\/p>\n Oil prices hit their highest level since 2022, peaking near US$120 per barrel in March. On Monday, American crude was trading over $85 per barrel.<\/a><\/p>\n The continuous high oil costs tend to ripple through the economy, explains Antunes. <\/p>\n \u201cIt\u2019s hitting gasoline prices first, it will also translate into higher transportation costs, and that\u2019s when it starts spreading more broadly through the economy,\u201d says Antunes. <\/p>\n March could be described as a transition period before the full impact of rising energy prices is felt, says Andrew Hencic, senior economist at TD Bank Group.<\/p>\n Hencic says measures of core inflation, which strip out food and energy, were \u201crelatively soft\u201d in March.<\/p>\n \u201cThat again kind of goes back to our prior thinking that the economy and the excess slack in the economy was putting a little bit of downward pressure on prices before we really experienced this energy shock and the impacts that could come in the following months.,\u201d he says.<\/p>\n Bank of Canada likely to wait<\/p>\n Central banks adjusting interest rates now could be premature, given the uncertainty around how long the energy shock will last, says Hencic. <\/p>\n \u201cThe central banks can\u2019t do much in terms of the way of gasoline prices,\u201d he says. <\/p>\n Antunes says the inflation surge is being driven by external factors beyond the central bank\u2019s control.<\/p>\n \u201cWhat can they do?\u201d Antunes says. \u201cThey can increase rates to hit the economy even harder. But the point here is that this is coming from outside. It\u2019s an energy price shock.\u201d<\/p>\n Hencic says there is a scenario where the oil shock fades and the economy is adjusting to a new level of interest rates. <\/p>\n \u201cWe think it\u2019s probably appropriate for them to look through this first phase for the Bank of Canada. That means staying pat for the time being,\u201d says Hencic. <\/p>\n Even so, markets are already reacting, explains Antunes.<\/p>\n Borrowing costs tied to bond yields have begun to rise in anticipation of tighter monetary policy.<\/p>\n \u201cSo we\u2019re already feeling the pinch of this inflation impact on essentially, financing costs, debt financing costs,\u201d says Antunes.<\/p>\n Food prices remain a concern<\/p>\n Canadian food inflation slowed to four per cent in March, down from 5.4 per cent in February. <\/p>\n This cooling was primarily caused by the end of a previous year\u2019s tax holiday falling out of annual comparisons, leading to lower price increases for groceries and restaurant meals compared to the previous month, says Statistics Canada. <\/p>\n \u201cThat has not eased at all yet,\u201d says Antunes. \u201cI think we may end up with more pressure.\u201d<\/p>\n