Canada’s consumer price index (CPI) fell to 1.7% in April thanks to the removal of the consumer carbon price and lower crude oil prices. For now, price increases associated with U.S. tariffs seem to have been kept at bay.
The end of the consumer carbon tax should continue to apply downward pressure on yearly inflation numbers in the summer, partially offsetting the effects of tariffs.
However, inflation will not continue to decrease on a monthly basis since removing the consumer carbon tax will only result in a one-time price drop.
Shelter was the other major factor that applied downward momentum to inflation last month. Slowing demand, partly due to stricter immigration policies, led shelter inflation to slide to 3.4 per cent—the lowest since 2021.
Prices are expected to remain cool in the next few months as interest rates stay low and the housing market becomes more balanced.
The increase in core inflation measures, meanwhile, are somewhat concerning. Weighted median inflation and trimmed mean inflation rose above 3 per cent in April, which are indicative of upward pressures on prices should further tariffs take effect.
Other categories showed an uptick in inflation as Canada’s CPI rose 2.9 per cent in April, excluding energy—an increase from 2.5 per cent in March. This is largely due to higher groceries prices, which rose 3.8 per cent, and higher prices for travel tours, which rose 6.7 per cent.
While April’s job report displayed warning signs of a weakening economy because of trade uncertainty, the disinflation seen in April’s consumer price data increases the odds of a rate hold by the Bank of Canada in June.
The high core inflation also means that the odds of a rate hold remain slightly higher than a cut.
The consumer portion of federal carbon pricing was removed on April 1, which led to an 18.1 per cent year-over-year decrease in gasoline prices as well as a 14.1 per cent year-over-year decrease in natural gas prices.
Global oil prices also took a nosedive as OPEC upped production, while global growth is expected to stagnate due to slowing trade related to tariffs.
Housing costs, which have played a major role in inflation since the onset of the COVID-19 pandemic, are now a huge tail wind for disinflation. High population growth in a relatively short period of time pushed up demand for housing—which was unmatched by supply—sending prices of home sales and rents skyrocketing. Additionally, higher interest rates that persisted through the past couple of years resulted in higher mortgage interest payments.
Rental prices, which have been the most stubborn component of inflation, are finally dropping as population growth slows and the housing market appears more balanced.
But there are upward pressures on inflation as well. Groceries prices rose 3.8 per cent on a year-over-year basis, while restaurant prices also rose 3.6 per cent; both increases are an acceleration from the past few months. These could be attributed to retaliatory tariffs Canada placed on U.S. food imports starting in mid-March.
Inflation in the months ahead will depend largely on the extent of tariff threats that materialize and their subsequent macroeconomic effects.
Supply chain disruptions as businesses diversify from the U.S. and explore alternative trade routes, suppliers and customers could push inflation further up.
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