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(Bloomberg) -- Canada’s inflation rate surged to 2.4% in March as the Iran war triggered a record increase in gasoline prices, though it came in slightly lower than economists expected.

Headline inflation was projected to quicken to 2.6% last month, up from 1.8% in February. Excluding gasoline, the consumer price index was up 2.2% from a year earlier.

Monday’s inflation data provides the first glimpse into the impact on prices in Canada of the conflict in the Middle East. The Bank of Canada has signaled that it plans to look through the short-term impact of the oil shock. Traders have priced in a high chance of a rate hike later in the year.

Bonds rallied at the short end of the curve. The two-year benchmark Canada yield, which had traded just below 2.8% earlier in the morning, fell to around 2.76% as of 10:44 a.m. in Ottawa.

Gasoline prices jumped by 21.2% on the month, according to Statistics Canada’s report on Monday, marking the largest increase on record as the Middle East conflict drove up oil prices globally.

Meanwhile, natural gas prices fell by 18.1% on a monthly basis, moderating the run-up in energy costs. StatCan noted that natural gas is dependent on North American supply and “more insulated from global price changes.”

Overall, the consumer price index rose 0.9% on a monthly basis, compared with a median expectation of 1.1% in a Bloomberg survey of economists.

The central bank will have its eye on whether inflationary effects broaden out beyond gasoline prices, as it weighs those risks against ongoing weakness in the economy.

The bank’s preferred core measures suggest underlying price pressures remained contained in March, with the median gauge holding steady at 2.3% and trim easing slightly to 2.2%. Excluding food and energy, inflation slowed to 1.9% from 2%.

“The March report reinforces our view that recent increases in oil prices can push headline inflation higher in the near term but are unlikely to reignite broader inflation pressures,” Royal Bank of Canada economist Abbey Xu said in a note.

The central bank is slated to make an interest rate announcement next week and is widely expected to hold its policy rate at 2.25%.

The share of CPI components rising by more than 3% and 5% are both lower in March, said Charles St-Arnaud, chief economist at Servus Credit Union.