Canada’s annual inflation rate fell to 1.7% in April from 2.3% in March, owing primarily to a sharp 12.7% decline in overall energy prices, according to data released by Statistics Canada.
The drop comes after the federal government eliminated the consumer carbon tax, which considerably reduced gas prices and residential energy consumption.
Gasoline prices were down 18.1% in April over the same month in 2024, while natural gas was down 14.1%.
The fall in energy prices was sufficient to bring the headline inflation rate closer to forecasts, although slightly above analyst estimates of 1.6%.
The Bank of Canada had forecast the rate would peak just below 1.5%, owing mainly to declining crude oil costs and the tax reduction.
On a month-over-month basis, inflation declined by 0.1%, coming in slightly better than analysts’ expectations for a 0.2% drop.
Core Inflation measures signal underlying heat
Despite the decline in the headline rate, core inflation—a key metric for the Bank of Canada—showed troubling patterns.
Two of the central bank’s three core indicators rose to their highest levels in almost a year, showing that pricing pressures remain strong in parts of the economy.
The CPI median, which measures price movements across all goods and services, increased to 3.2% in April from 2.8% in March, reaching its highest level since March 2024.
Meanwhile, the CPI trim, which removes severe price swings on either end, increased to 3.1% from 2.9%, marking a 13-month high.
These core measures do not account for volatile elements such as energy prices or the impact of tax changes, making them a more reliable indication of inflation trends.
The rise in these indices indicates that underlying inflation may still be over the Bank of Canada’s 2% objective.
Food and travel costs keep climbing
Despite reducing energy costs, numerous consumer essentials increased in price.
Grocery prices increased 3.8% in April compared to the previous year, above the 3.2% increase witnessed in March.
This further rise in food prices can be interpreted as evidence that consumers continue to be squeezed on household staples.
Prices for travel tours jumped 6.7% on-year in April, also contributing to core inflation, as travel-related costs added to the burden.
The increase may also indicate enduring supply constraints in the tourism industry and firm consumer demand.
Policy outlook ahead of the June rate decision
The April inflation data is an important economic indicator before the Bank of Canada’s next interest rate announcement, on June 4.
The central bank decided to keep interest rates unchanged on April 16, following seven consecutive drops since June 2024.
At the time, it highlighted its willingness to act decisively if inflationary threats resurfaced.
The rise in core inflation might have a significant impact on next policy debates, particularly if GDP data for the first quarter, which is due on May 30, indicates ongoing economic resiliency.
The Bank is likely to investigate whether the decline in headline inflation is sustainable or only a transitory result of tax policy and energy market conditions.
With inflationary pressures generating conflicting signals, the central bank may confront a more difficult decision in June.
While consumers gain from lower energy prices, the continuance of core inflation indicates that the route to price stability is uncertain.
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