Carbon Tax Repeal Drives Sharp Inflation Drop, Though Food Prices Keep Rising: StatCan Report

Canada’s inflation rate fell dramatically to 1.7% year-over-year in April (down from 2.3% in March) following the early-April elimination of the federal carbon tax for consumers, according to Tuesday’s Statistics Canada report. However, grocery stores continued to see accelerating price growth.

The April deceleration slightly exceeded economist consensus forecasts of 1.6%, with the most immediate relief felt at gas pumps. When excluding volatile energy components, the core CPI would have registered 2.9%—a noticeable increase from March’s 2.5%.

While consumers benefited from lower fuel costs, grocery inflation accelerated to 3.8% (up from 3.2% in March), maintaining pressure on household budgets.

The inflation release comes just two weeks ahead of the Bank of Canada’s June 4 rate decision. In its previous meeting, the central bank held its policy rate steady at 2.75%, citing need to assess economic impacts from ongoing U.S.-Canada trade tensions.

Market expectations shifted sharply on Tuesday, with LSEG Data & Analytics showing traders pricing in less than 40% odds of a June rate cut—down from 64% late last week.

CIBC Senior Economist Andrew Grantham noted the Bank will closely monitor whether trade disputes are spilling into labor markets, referencing April’s unemployment rate rise to 6.9%—partly driven by trade-exposed manufacturing losses.

“Recent data presents a policy dilemma: softening job markets suggest economic vulnerability, while sticky core inflation persists,” Grantham observed.

TD Bank’s Andrew Hencic highlighted that rising underlying inflation may indicate tariff-driven price pressures are materializing faster than anticipated. Both economists agree the April report “complicates” the BoC’s June decision.

TD maintains its forecast for two additional rate cuts in 2024, though timing remains data-dependent.