April 2025 CPI: Inflation Cools to 1.7% with Carbon Price off the Table

Even with tariffs in full swing, inflation in April eased slightly to 1.7% year-over-year, thanks in part to a rare helper: the federal carbon price adjustment. Unsurprisingly, with more relief by way of lower in-home heating bills and prices at the pump, energy costs led the deceleration. While this helped offset broader cost pressures and keeps headline inflation within the comfort range, this dip is only temporary. Persistent core inflation and external trade uncertainties will continue to keep the Bank on alert as they decide whether another cut (albeit perhaps lower) is in store for next interest rate announcement on June 4.

Summary:

• Canada’s headline inflation grew by 1.7% in April, down from 2.3% in March. This is slightly above consensus (1.6%) on a basis. The drop was expected primarily due to the elimination of the federal carbon tax and declining oil prices. This marks the lowest inflation rate since late 2023.
• On a monthly basis, the overall CPI decreased by 0.1%, or 0.2% when seasonally adjusted.
• The Bank of Canada’s core inflation measures, which exclude more price sensitive items like energy and food, saw increases: the CPI-median rose to 3.2% and the CPI-trim increased to 3.1%, both reaching 13-month highs.

CPI Breakdown:

• This slowdown in inflation was primarily driven by a significant 12.7% drop in energy prices, notably an 18.1% year-over-year fall in gasoline prices, following the removal of the federal carbon tax.
• Notably, food prices especially purchased from stores accelerated in price growth, with groceries up 3.8% year-over-year compared with 3.2% the month prior.
• Travel tour costs surged by 6.7%.

Provincial Trends: Inflation eased across nine provinces in April, with Quebec standing out for slightly faster price growth as gasoline prices there dropped by just 12.1% — a smaller decline than seen elsewhere in the country.

Implications:

• While the headline inflation rate is giving the Bank some flexibility and supports the case for a potential rate cut on paper, it’s not a sure thing with core inflation on the rise. This was also emphasized by Governor Macklem’s “the need for ‘sustained progress’ on core measures before cutting rates.”

• Financial markets have now reduced the probability of a rate cut, April’s weak jobs report and stalling employment growth will have to be delicately balanced against inflation targets. 
• Overall, the Bank faces a complex decision while balancing the need to support economic growth. The upcoming Q1 GDP figures, set to be released on May 30, will provide further insight into the economic landscape ahead of the Bank’s announcement.

Charts and tables

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab