Canadian CPI was beyond anyone's expectations in March but a change to the calculations around mortgages and home prices contributed to some of the beat.
Statistics Canada said:
"With the release of the March 2022 Consumer Price Index (CPI), a new data source for resale house prices, in addition to the New Housing Price Index, will be used in the calculation of the mortgage interest cost index (MICI). This change will improve the timeliness of resale housing prices in the MICI, as well as the other owned accommodation expenses index, which includes commissions on the sale of real estate."
CIBC notes that the change added 0.15 pp to monthly headline CPI and 0.2 pp to core. Still, the headline was at 1.4% vs 1.0% expected so it still wouldn't have been particularly close.
Going forward though, it could be a drag on home prices, with early data showing that a correction began in March.
"Components will become even more sensitive to house price movement," CIBC noted after the release.
On the nearer-term implications for the Bank of Canada, they note this will mean another 50 bps hike at the next meeting.
"Inflation continues to run well ahead of expectations from earlier in the year, linked not just to commodity price spikes but also to stronger underlying price pressures as well. The upside surprise is likely to bring another non-standard 50bp hike from the Bank of Canada at it's next meeting. While March should represent the peak in inflation due to the slight pullback in energy prices from their highest point, any easing in the next few months will likely be fairly gradual due to continued supply disruptions emanating from the war in Ukraine and lockdown measures in China. A more meaningful deceleration in inflationary pressure will likely wait until the second half of this year and into 2023."
USD/CAD is now flirting with 1.2500 even with energy prices falling into negative territory.