Canada’s Consumer Price Index rose 1.7% annually in April, slightly above FactSet estimates of 1.6% but down sharply from 2.3% in March—its slowest pace since September. The inflation slowdown reduces the likelihood of the Bank of Canada cutting interest rates at its June 4 meeting.
The latest Statistics Canada report showed the index retreated 0.1% on a monthly basis, following a 0.3% increase in March. The deceleration was primarily driven by the removal of the carbon tax and falling oil prices. The cooling is particularly notable amid heightened trade tensions, with US President Donald Trump having imposed tariffs on a broad wide range of Canadian goods, prompting retaliatory duties from Canada on US imports.
However, hotter-than-expected core inflation numbers complicate the outlook for a June rate cut. Some analysts say the Bank of Canada’s decision will hinge on next week’s GDP data. Traders in overnight swaps have lowered the odds of a June rate cut to about 35%, cutting it in half from nearly 70% earlier.
April CPI Slowdown Driven by Carbon Tax Cut and Lower Energy Costs
The April decline in inflation was led by lower gasoline prices and the elimination of the consumer carbon tax, which helped offset an uptick in food prices. However, core inflation measures (the Bank of Canada’s preferred inflation gauge) continued to accelerate. CPI-trim edged up to 3.1% from 2.8% in March, while CPI-median climbed to 3.2% from 2.9% the previous month. Core inflation excludes more volatile CPI components, offering a clearer view of underlying price trends.
Here are highlights from analyst commentary on the April report.
Charles St-Arnaud, chief economist at Alberta Central
“Overall, the report suggests that, while inflation eased in significantly in April, mostly due to the removal of the carbon tax, underlying inflationary pressures remained elevated. This puts the Bank of Canada in a very hard situation. On one side, the labor market and the economy are weakening and are expected to remain weak for some time, while on the other hand, core inflation is stronger than expected and is likely to be stickier than expected. With this in mind, whether the Bank of Canada cuts at the June meeting will be a very close call.”
Douglas Porter, chief economist at BMO Economics
“The big relief from lower gasoline prices in April masked an unfriendly inflation picture beneath the surface. Some of that upswing in underlying prices appears related to the simmering trade war, with food and vehicle prices showing some real power. In other words, there are two conflicting special factors at play here, both of which should fade over time.
“This leaves the Bank of Canada in a spot, as their two main measures of core are now running at their fastest pace in a year—i.e., back before they began cutting rates. After a weak jobs report handed the Bank a good reason to cut, this back-up in core above 3% pretty much washes that away. Given a weak growth outlook for much of 2025, we continue to expect further rate reductions, but the Bank may need more time to gain comfort in the inflation outlook.”
Thomas Ryan, North America economist at Capital Economics
“[The report] shows underlying inflation pressures still pose a threat, but with growing signs that US tariffs are putting strain on the economy – most notably in manufacturing and housing – we do not think this will be enough to dissuade the Bank of Canada from cutting interest rates in June.
“While this level of underlying [core] inflation is still too high for the Bank of Canada’s comfort, the Bank’s mostly dovish tone in April suggests it is more focused on economic risks, which supports our view that it will cut rates again in June following the recent set of weaker economic data.”
Andrew Grantham, executive director and senior economist at CIBC Capital Markets
“While headline inflation was in line with our forecast, core measures looked stronger than anticipated which puts a question mark over our forecast for a 25-basis-point cut at the June meeting. That call now relies on next week’s GDP data suggesting that the economy is tracking towards a contraction in Q2, which would be weaker than the Bank of Canada’s less pessimistic ‘scenario 1’ forecast within its April MPR. Without that evidence, policymakers could well elect to wait for more data before making further any further reductions in interest rates.”
Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
“The Bank of Canada typically looks through level shifts in prices like the one driven by the removal of the carbon tax and officials will clearly be concerned with the recent acceleration in core measures of inflation. That said, given that the removal of the federal carbon price will also likely impact inflation expectations, there’s scope for the change to further affect price dynamics in a positive way.
“… We expect that upcoming surveys will show a sharp reversal of the spike in inflation expectations seen earlier this year. Policymakers should have an early internal indication of inflation expectations by the time of their next scheduled rate decision. With the economy clearly weakening in recent months, lower inflation expectations should keep central bankers on track to cut rates 25 basis points in June. We recently revised our terminal rate forecast to 2%, up from 1.75%, and today’s slightly hotter data reinforce that decision, but the data don’t remove the need for monetary stimulus in the near-term.”
Nathan Janzen, assistant chief economist at Royal Bank of Canada
“We expect Canadian retaliatory tariffs to have a limited impact on consumer prices and with the downward impact from the carbon tax removal mechanically keeping inflation at or around the Bank of Canada’s 2% target into early next year.“But the Bank of Canada will be more concerned about growth in their preferred core price measures, which should not be impacted by tax changes. Those were already showing signs of acceleration in months before tariffs were imposed and accelerated broadly to (year-over-year) rates above the central bank’s 1% to 3% target range in April for the first time since June 2024.
“Our own base case expectation has been that a softening economic growth backdrop will ultimately push the Bank of Canada to cut the overnight rate down to 2.25% in the summer (from 2.75% currently) after skipping a reduction in April. But the central bank will need to balance that pessimistic growth outlook with inflation pressures—and the latest upside inflation surprise means it could well now take downside economic growth surprises to justify further cuts.”
Matthieu Arseneau, economist at the National Bank of Canada
“… economists likely underestimated the deflationary impact of the carbon tax removal. When excluding indirect taxes, inflation actually rose, with CPI climbing from 2.1% to 2.3% year-over-year, driven by a 0.4% month-over-month increase (seasonally adjusted). This uptick should not be alarming for a central bank targeting 2%, but core inflation measures might concern it.
“Despite these [core] inflationary pressures, the broader economic picture suggests in our view limited risk of sustained inflation. Additionally, the economy is already showing numerous signs of strain including private corporations slashing jobs. With the economy already facing excess supply and as retaliatory tariff measures are relatively limited, this is not the moment for the Bank of Canada to fixate on inflation, a lagging indicator, but rather to focus on fostering conditions that sustain economic growth. We continue to anticipate a cut in the policy rate to 2% by the end of the year.”
Tony Stillo, director of Canada economics at Oxford Economics
“The carbon tax cut will continue to hold down year-over-year headline inflation for the next year, while recently announced temporary Canadian counter-tariff relief will also limit the upward price pressure from the trade war in the near term. But once the exemption expires for most counter-tariffs in October, we expect inflation will rise to 3% y/y by early 2026.
“Despite below-target inflation in April, we still expect the Bank of Canada will hold rates in neutral territory as it tries to manage pervasive uncertainty, while balancing the hit to the economy from the trade war against upside risks to inflation from tariffs and supply disruptions.”
Tu Nguyen, economist at RSM Canada
“For now, price increases associated with tariffs seem to have been kept at bay. Looking ahead, the removal of consumer carbon pricing will continue to apply downward pressure on yearly inflation numbers in the summer, partially offsetting tariff effects. Nevertheless, inflation will not continue to decrease on a monthly basis since the removal of the consumer portion of carbon pricing will only result in a one-time price drop.
“While April’s job report displays 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.”
Derek Holt, vice president and head of capital markets economics at Scotiabank
“June 4 Bank of Canada cut pricing was slashed in the wake of a hot set of core inflation readings for April that was consistent with my guidance. We still need to hear from Bank of Canada Governor [Tiff] Macklem later this week and also see GDP for Q1, March and April on May 30 that will inform Q2 momentum, but as of now it’s looking like a stretch bet to expect the Bank of Canada to cut. Layer on several other points along with forward-looking inflation risks and the case for cutting is very weak.”
Andrew Hencic, director and senior economist at TD Bank
“Today’s inflation print is a setback for the Bank of Canada and complicates the picture for the path of monetary policy. However, with the government of Canada offering a temporary reprieve on some tariffs, and the labor market slowing rapidly, we believe the central bank will have enough space to deliver two more cuts this year—adding a bit more support to an economy quickly losing momentum.”
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