Commerzbank Says Canada CPI Rise Not As Strong As Expected; Sees Gradual BoC Rate Hikes, Contained Inflation Risks

07:39 AM EDT, 04/21/2026 (MT Newswires) -- While the consumer price index headline rate rose sharply in Canada in March, at 0.9% month-over-month unadjusted for seasonal factors, this was not quite as strong as the expected 1.1%, said Commerzbank after Monday's CPI.

This was still one of the highest month-on-month price increases since inflation normalized, but not an exceptionally high one as seasonal effects distorted the rate, wrote the bank in a note to clients. Another point to consider is that while the headline rate rose significantly, the core rate actually declined slightly, which was somewhat surprising.

It could well be that the energy price shock takes a little longer to fully impact inflation figures, though Canada, as an energy exporter, appears somewhat better protected anyway, stated Commerzbank.

At the moment, however, the bank doubts that Canadian inflation will spiral out of control. The real economy is still too weak for that, and the inflationary pressure at the start of the war in the Middle East was rather too weak than too strong. Several weeks ago, Commerzbank criticized the markets' advanced expectations for Bank of Canada rate hikes and argued that there was room for a correction here.

Markets now appear to share this view, as expectations have reached a level not far from where they were at the beginning of the year, pointed out the bank.

Commerzbank still expects the BoC to have the leeway to raise rates again by the end of the year. After all, the policy rate is arguably somewhat accommodative, the USMCA negotiations will hopefully have been successfully concluded for the time being, and the real economy is finally recovering.

However, central bankers are unlikely to raise rates three times in a row. They will instead probably increase them "very gradually," added Commerzbank. These more realistic expectations now make the Canadian dollar (CAD or loonie) less vulnerable should there be a pricing out of rate hike expectations for other G10 central banks over the coming weeks.

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