Canada’s Consumer Price Index came in up by 0.6% in April, driven by higher gasoline and tobacco prices. This was the third consecutive month of a steady increase in consumer prices, and should keep interest rates heading higher.

According to Statistics Canada, consumers paid 1.7% more than a year ago for the goods and services included in the CPI basket. This 12-month change is down slightly from the 1.8% increase recorded in March.

On a monthly basis, however, the index has been increasing at a steady pace, rising 0.6% in February, 0.7% in March and 0.6% in April. Higher gasoline prices were mainly responsible for the increases in March and April.

StatsCan says these monthly price increases in the CPI coincide with a more robust economy and employment gains bolstered by consumer demand.

RBC notes that, on a year-over-year basis, April consumer prices largely in line with expectations and roughly in the middle of the Bank of Canada’s target range. However, looking at the core rate, excluding the volatile food and energy components, the annual rate was 2.3% in April.

“High enough for the Bank of Canada to focus more on potential future inflation than on the current strength of the domestic economy,” it says. “Continued, gradual 25 basis points increases in short-term interest rates are expected over the next 12 months or so, although the recent relative strength of the Canadian dollar will help to limit core inflationary pressure over the course of this year.”

While a moderation from today’s level is still expected, it’s now unlikely that core CPI will make a sustained push below the Bank of Canada’s target, says CIBC World Markets. “The upside surprise in core CPI cements the case for another rate hike in June. Still, with the Fed firmly on the sidelines, there’s little reason for the Bank to abandon a “measured” pace of quarter-point rate hikes by adopting a more aggressive move next month.”

BMO Nesbitt Burns agrees that the higher-than-expected reading on core CPI is an indication that pricing power is slowly returning, and is “another reason to convince the Bank to continue tightening.”