The Consumer Price Index Core in Canada decreased from 2.7% to 2.2% in March. This metric reflects the year-on-year changes in the cost of living excluding volatile items and is used to assess inflation trends.
This decline in the core CPI may influence monetary policy decisions by the Bank of Canada. The central bank monitors these figures to guide their strategies in maintaining economic stability.
Impact On Financial Markets
Changes in core CPI can also impact financial markets and economic forecasts. A lower CPI may affect consumer spending behaviour and overall economic activity.
With the Core CPI pulling back to 2.2% in March, down from 2.7%, we’re continuing to observe a deeper cooling in underlying inflationary pressures across the Canadian economy. This figure strips out food and energy components—items that tend to spike unpredictably—and so it gives a clearer look at price movements that are more closely linked to domestic demand.
This shift downward puts the Bank of Canada in a more flexible position regarding interest rates. Macklem and his committee will view it through the lens of upcoming monetary policy discussions, particularly since it brings the index closer to the 2% target they consider appropriate for long-term price stability. For those watching policy rates, this drop doesn’t occur in isolation—it aligns with softer consumer activity and hints that previous rate hikes are beginning to have their intended impact.
Market Reactions and Expectations
Markets factoring in rate expectations have already begun adjusting. Swaps and overnight index futures imply a higher likelihood of policy easing if disinflation trends remain consistent. Immediate reactions in the shorter-term interest rate curves make it apparent that traders are recalibrating exposure, with volatility pinned closely to each new data release.
While this reduction in core inflation is data we’ve anticipated, its pace does matter. If it continues at this trajectory—or even stalls slightly near current levels—it adds to the argument supporting a more dovish stance later in the year. Participants need to remain alert to auxiliary metrics such as wage growth and output gaps, which can complicate what appears to be a straightforward disinflationary track.
The bigger question for markets now isn’t whether inflation is falling, but how quickly decision-makers will respond, especially with Canada’s GDP growth beginning to moderate. Broadly, inflation-linked instruments are starting to reflect a more stable medium-term forecast, prompting a re-evaluation of breakeven rates and forward guidance priced into swaps.
We believe short-end derivatives, particularly those tied to central bank policy expectations, will remain highly sensitive in the weeks ahead. Any shifts in language from scheduled commentary or unanticipated economic prints could lead to abrupt position changes. Maintaining nimbleness across the curve, especially in the 6- to 12-month tenor, will be key.
Following the latest CPI data, yield differentials between Canada and the United States also deserve scrutiny. With U.S. inflation proving more stubborn, any divergence in rate paths—particularly if the Fed holds firm while Canadian policymakers pivot—could create swings in cross-border rate spreads. That’s not just noise; spreads act as a global signalling mechanism, reshaping positions across macro portfolios.
It’s also worth noting that sentiment has now become more reactive than proactive. Positioning changes are now happening not months in advance but within hours of CPI releases and governor speeches. As such, we’re monitoring not just the policy signals but the way participants respond to them—this behavioural element now impacts liquidity timing and trade structuring far more than it did last year.
So while inflation is receding, for us the focus remains on how monetary authorities interpret this trend and how quickly they reflect it in their decisions. Those managing exposure should move alongside conviction shifts, not merely the numbers.
