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Sharp Increase in Core, Likely on Commodity Price Pass-Through
Large upside surprise in core inflation, pushing year-over-year figure much closer to Bank of Canada's target.
1. Canada's core CPI surprised sharply to the upside in March, rising 0.5% on a seasonally adjusted basis on the month and more than reversing the downside surprises of prior months. Two key factors explaining the sharp rise in the core index were clothing/shoes (+2.1% mom SA, the largest monthly increase on record, worth about 14 basis points on the SA core), and food (+1.6% mom SA, also the largest monthly increase on record; unlike the US core index, a large part of food is included in the Canadian core index--with a simple assumption that food prices rose equally across all categories, this would be worth about 30 basis points on the SA core). Given increases in cotton prices in recent months, commodity prices look to be a factor in both of these increases.