OTTAWA — The end of the consumer carbon price at the start of April drove inflation down sharply, Statistics Canada said Tuesday, but there were signs of pressure building at the grocery store.
The annual pace of inflation cooled to 1.7 per cent last month, down from 2.3 per cent in March, the agency said. That’s a little higher than the 1.6 per cent expected by a poll of economists.
But with a Bank of Canada interest rate decision set for early June, market odds flipped in favour of another rate hold from the central bank in response to the inflation data.
Canadians were primarily finding relief at the gas pumps in April.
Statistics Canada said gas prices fell 18.1 per cent year-over-year in April, thanks mostly to the end of the carbon price, but also because global oil prices fell amid declining demand and higher production from OPEC countries. Natural gas prices also fell 14.1 per cent annually in the month.
Excluding energy from the consumer price index, StatCan said inflation would have come in at 2.9 per cent for April – an increase from 2.5 per cent for the same calculation in March.
The only province that didn’t experience a slowdown in inflation last month was Quebec, a province that has its own cap-and-trade system and therefore didn’t benefit from the end of the federal carbon price regime.
But while consumers found it cheaper to gas up in April, pressure was building at the grocery store.
Prices for food bought from the store rose 3.8 per cent last month, StatCan said, accelerating from 3.2 per cent in March.
On an annual basis, prices for fresh vegetables rose 3.7 per cent, the cost of fresh and frozen beef was up 16.2 per cent and prices of coffee and tea rose 13.4 per cent, the agency said.
Grocery store inflation has now outpaced the overall consumer price index for three months in a row.
Canadian travellers also felt the pinch as travel tour prices rose 3.7 per cent monthly in April, reversing course after a decline of eight per cent in March.
The April inflation figures come a little more than two weeks before the Bank of Canada is set to make its next interest rate decision on June 4.
The central bank held its policy rate steady at 2.75 per cent last month, saying then that it needed more time to see how Canada’s trade war with the United States was impacting the economy.
Financial market odds of an interest rate cut in June fell to just under 40 per cent Tuesday morning, compared with roughly 64 per cent at the end of last week, according to LSEG Data & Analytics.
While the headline inflation figures showed signs of easing in April, the Bank of Canada's preferred measures of core inflation, which strip out influences like the end of the carbon carbon price, accelerated to top three per cent in the month.
CI小蓝视频 senior economist Andrew Grantham said in a note to clients Tuesday that the central bank will be watching that trend carefully, alongside indications that the tariff dispute was starting to bite Canada's labour market.
StatCan reported earlier this month that the national unemployment rate rose to 6.9 per cent in April as the trade-sensitive manufacturing sector took a hit.
"Signs of renewed weakening in the economy on one hand, as shown by the latest employment data, but stronger core inflation on the other makes for a tough decision for the Bank of Canada at its early June meeting," Grantham said.
TD Bank senior economist Andrew Hencic said in a note that signs of a resurgence in core inflation might mean that the tariff hit could be showing up sooner than anticipated in the price data.
Like Grantham, Hencic said the April inflation report "complicates" the Bank of Canada's decision making.
The central bank typically raises its policy rate to tamp down price pressures and lowers it to encourage economic growth; policymakers have made clear they can't effectively lean against both a slowing economy and a resurgence in inflation at the same time in a trade war.
Hencic said TD sees two additional interest rate cuts from the Bank of Canada this year.
This report by The Canadian Press was first published May 20, 2025.
Craig Lord, The Canadian Press
