Canada’s Inflation Rate Drops to 1.7% in April as Energy Prices Plunge
In April 2025, Canada’s annual inflation rate decreased to 1.7%, down from 2.3% in March, according to Statistics Canada. This decline was primarily driven by a significant 12.7% drop in energy prices, largely attributed to the removal of the federal consumer carbon tax.
Despite the overall decrease in the headline inflation rate, core inflation measures, which exclude volatile items like energy and food, have risen. The CPI median and CPI trim increased to 3.2% and 3.1%, respectively, marking their highest levels since March 2024.
Impact of Energy Prices and Policy Changes
The removal of the consumer portion of Canada’s carbon pricing policy, effective April 1, 2025, played a significant role in the decline of energy prices. Gasoline prices fell by 18.1% year-over-year in April, following a 1.6% decline in March. This policy change was implemented by Prime Minister Mark Carney’s government, aiming to alleviate the financial burden on consumers.
However, while energy prices decreased, other sectors experienced price increases. Food purchased from stores saw a 3.8% year-over-year increase in April, up from 3.2% in March. Shelter costs also rose by 3.4%, although this was the lowest rate since 2021, partly due to stricter immigration policies leading to reduced demand.
Bank of Canada’s Interest Rate Decisions
The Bank of Canada (BoC) maintained its key policy rate at 2.75% during its April 16 meeting, following a series of rate cuts since June 2024. This decision reflects the central bank’s cautious approach amid mixed economic signals, including persistent core inflation and the effects of recent U.S. tariffs on Canadian exports.
Analysts are divided on the BoC’s next move. Some, like Andrew Grantham from CIBC, suggest that while inflation pressures have reduced, the persistence of core inflation complicates the BoC’s decision-making for its June meeting. Others, such as Darcy Briggs of Franklin Templeton, note that slightly higher-than-expected inflation excluding food and energy could be due to tariffs, yet see no immediate cause for central bank action.
Economic Outlook and Future Considerations
The Canadian economy faces several challenges, including the impact of U.S.-imposed tariffs and ongoing global trade tensions. These factors contribute to uncertainty in the BoC’s policy path. The central bank’s next interest rate decision is scheduled for June 4, 2025.
Additionally, the effects of the removal of the consumer carbon tax are expected to continue applying downward pressure on inflation numbers in the coming months. However, this is anticipated to be a one-time adjustment, and inflation may not continue to decrease on a monthly basis.
In summary, while Canada’s headline inflation rate has decreased, underlying price pressures remain. The BoC must navigate these complexities carefully to balance inflation control with economic growth.
