Canada’s annual inflation charge slowed to 1.7% in April, down from 2.3% in March, as power costs tumbled. Nevertheless, underlying worth pressures remained agency, including uncertainty to the Financial institution of Canada’s subsequent transfer on rates of interest.

The nation’s annual inflation decline was largely pushed by a steep drop in power costs (-12.7%), with gasoline (-18.2%) and pure fuel (-14.1% y/y, -18.9% m/m) main the best way. Statistics Canada famous that the decline in gasoline costs was primarily because of the elimination of the buyer carbon worth.

The slowdown in annual inflation was partially offset by rising journey tour costs (+6.7%) and better meals prices at grocery shops (+3.8%).

Nevertheless, CPI excluding power rose 2.9% in April, up from 2.5% in March, pointing to renewed underlying worth pressures. The Financial institution of Canada’s most popular inflation measures—CPI trim and CPI median—additionally ticked up, reaching 3.1% and three.2%, respectively.

Economists largely view the April CPI report as masking deeper considerations beneath the headline decline. TD’s Andrew Hencic stated this: “Prime line inflation seemingly provided a reprieve, however the particulars of the report present that underlying inflation pressures picked up.”

Meals costs rose sharply in April, contributing to the rise in core inflation, which climbed to three.8% year-over-year from 3.2% in March.

BMO’s Douglas Porter famous that the results of tariffs are starting to indicate in particular classes, significantly meals and car prices.

“A weak loonie initially of the yr, and tariffs on some U.S. imports have mixed to drive grocery costs northward,” Porter stated. “One other space that’s reflecting commerce battle stress, car costs rose 0.9% m/m, lifting the annual charge to nearly 3%—these costs dipped 0.1% for all of 2024.”

BoC caught between tariff-driven inflation and weak job market

With tariff-related pressures starting to floor in Canada’s CPI knowledge and April’s jobs report exhibiting indicators of weak point, economists see the BoC in a tightening bind.

Porter sees two divergent forces at play within the knowledge: falling power costs and rising core inflation pushed by tariffs. Whereas he expects each to fade over time, he notes the Financial institution of Canada nonetheless faces a problem, with its most popular core measures operating hotter than anticipated.

“This leaves the Financial institution of Canada in a spot, as their two primary measures of core at the moment are operating at their quickest tempo in a yr—i.e., again earlier than they started chopping charges,” he wrote. “After a weak jobs report handed the Financial institution a very good cause to chop, this back-up in core above 3% just about washes that away.”

That stated, Porter views extra charge cuts coming this yr given the weak financial outlook in retailer for 2025—however the BoC may have extra time to take action. 

TD’s Hencic is extra concrete, calling the most recent inflation knowledge “a setback for the BoC” that complicates the trail for charge cuts.

“Nevertheless, with the federal government of Canada providing a short lived reprieve on some tariffs, and the labour market slowing quickly, we consider the central financial institution could have sufficient house to ship two extra cuts this yr—including a bit extra assist to an economic system rapidly dropping momentum.”

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Final modified: Might 20, 2025