Economists are expecting the high price of gas to “shock” the

consumer price index (CPI) when Statistics Canada releases its March inflation report on Monday. Gas prices spiked 21 per cent between February and March as the war in Iran and resulting near-closure of the Strait of Hormuz reduced the flow of oil from the Middle East and pushed up global

energy prices . The month over month price jump for gas is the highest on record for data dating back to 1950 and tops the 17 per cent rebound from pandemic-era lows between April and May 2020, said Douglas Porter, chief economist and managing director at Bank of Montreal (BMO).

“Even during Russia’s invasion of Ukraine, we never had a month that was (higher than) a 12 per cent increase,” he said. “So that is going to be a bit of a shock in next week’s CPI.”

Canada’s headline inflation rate rose 1.8 per cent on a year-over-year basis in February. BMO forecasts it will come in at 2.6 per cent in March and above three per cent in April.

Porter said the federal government temporarily suspending the fuel excise tax on gasoline starting April 20 is a “big step in the right direction,” but the savings of 10 cents per litre will only counter a portion of the run-up and that relief could be wiped out if prices rise further.

Energy costs are just one factor that affects grocery bills, but Porter said the energy price spike does threaten some of the “modest progress” on grocery inflation seen in recent months.

“At this point, we’re expecting food prices  on average to rise a little bit more than four per cent this year,” said Porter. “I think the risk is somewhat to the high side of that call.”

Food would be among the first items affected by sustained high oil prices, said Nathan Janzen, assistant chief economist at Royal Bank of Canada (RBC). However, he said it would happen over a period of months, not weeks, as businesses are typically hesitant to pass on price increases to their customers until they need to.

RBC expects inflation to come in at 2.5 per cent in March and above three per cent in April.

Janzen said food price growth as measured in the CPI will probably slow in March due to distortions from last year’s GST/HST holiday, which removed the federal portion of sales tax on specific items between Dec. 14, 2024, and Feb. 15, 2025, including restaurant meals and certain grocery products.

However, Janzen noted that grocery prices have already been running above the broader rate of inflation for some time. Last month, Statistics Canada said grocery prices have climbed 30 per cent over the last five years.

“The longer this conflict drags on, the more risk you have of adding to that,” said Janzen. “Even if you’re just marginally adding to food price growth, it’s adding to prices that are still growing pretty rapidly.”

Overall, economists don’t expect to see the same widespread inflation that resulted from the commodity shock after Russia invaded Ukraine in 2022.

National Bank of Canada senior economist Alexandra Ducharme said while the impact of high energy prices could spill over into core measures in the second half of 2026, the bank currently expects inflation to be “contained” because the rest of the economy isn’t doing well.

“The latest jobs data was not stellar. We’re seeing a weak housing market, moderate credit growth and households are still facing a mortgage repayment shock,” she said. “We’re not seeing inflation pressures really building up in the economy right now.”

National Bank of Canada expects inflation to hit 2.6 per cent in March and 3.2 per cent in April.

BMO, RBC and National Bank all predict the Bank of Canada will look past the temporary inflation pressure and maintain its benchmark interest rate at 2.25 per cent at its next announcement on April 29. They also expect rates to remain unchanged for the rest of 2026.

Porter said the central bank will be “gritting their teeth through the entire year” as it deals with the soft housing market and uncertainty around the upcoming review of the Canada-United States-Mexico Agreement.

Janzen said the oil price shock is reducing consumers’ purchasing power, which has a significant impact on lower income households.

“If you’re hiking rates in that environment, you’re really just adding to those challenges that are already building in the economy.”

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