No Reason for Bank of Canada to Hike Rates After Today's CPI Update, Says TD

09:27 AM EDT, 05/19/2026 (MT Newswires) -- As expected, higher oil prices lifted Canadian inflation in April, but TD Economics isn't yet seeing much of a knock-on effect to non-energy-related goods or services, noting core inflation pressures were actually softer than expected in April.

There is little argument yet for Bank of Canada rate hikes here, and market pricing for rate hikes this year has come down a bit early Tuesday, TD noted.

Oil prices have remained high in May, so energy prices are likely to keep headline inflation elevated for some time, said the bank. Given a generally soft economic backdrop in Canada, TD expects the effect on core prices to be more "modest." Core inflation is expected to stay reasonably close to the 2% target on a year-on-year basis this year, it added.

TD noted Canadian headline consumer price index inflation jumped up to 2.8% year over year in April, from 2.4% in March, slightly below consensus expectations. Higher gasoline prices were a big part of the story, with inflation excluding gasoline up a more modest 2.0% year over year, it said.

TD also noted prices at the pump were up 28.6% year over year in April. Energy prices as a whole were 19.2% higher than a year ago, the fastest pace since 2022. "Surprisingly", the bank added, food inflation cooled to 3.5% year over year in April, down from 4% year over year in March.

Inflation for various categories was a "mixed" bag, noted the bank. Overall services inflation cooled further to 1.7% year over year, down from 2.6% year over year in March.

Higher energy costs haven't yet filtered through to core inflation, stated TD. In fact, core inflation cooled in April. The Bank of Canada's official core inflation metrics (median and trim) averaged 2.1% year over year in April, down from 2.3% in March.

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