Canada Watch: Headline on the Rise but Core at Target

Canadian headline inflation spiked to 2.8% in April on energy costs, but core inflation eased to 2.05%, hitting target levels. BofA expects the Bank of Canada to remain on hold at 2.25% through 2026 as core remains contained.

Key Takeaways

• 1.Canadian headline inflation rose to 2.8% yoy in April due to higher gasoline prices, while core measures fell to 2.05%.
• 2.BofA expects the Bank of Canada (BoC) to remain on hold for the rest of 2026, viewing the inflation spike as energy-driven while core remains contained.
• 3.Market pricing for 2026 hikes has been reduced, leading to a bull steepening of the CAD rates curve.

Table of Contents

• Key takeaways
• Headline inflation came in at 2.8% yoy in April...
• ...while core slowed down to 2.05% yoy
• Forecast update: Inflation to keep easing
• BoC: On hold for 2026, core contained = no hikes in sight
• Rates: CAD rates steepen on CPI print
• FX: Remaining mixed on CAD outlook

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