Inflation becoming more of an isolated energy rise, for now.

Inflation warmed up in April, but is more of an isolated energy rise for now, keeping below the Bank of Canada’s 3% upper bound. The month was noisy, led by higher gasoline prices and amplified by base-year effects from lower prices a year ago. Some of that pressure was offset by the temporary suspension of the fuel excise tax and the removal of the consumer carbon tax.

The key signal to watch is whether core inflation remains stable in the months ahead. Encouragingly it did in April, with some categories, including food, showing signs of improvement. Still, Canadians’ patience may be tested as headline inflation moves closer to 3% heading into the summer.

For the Bank of Canada, two factors remain paramount: the impact of U.S. trade uncertainty and the direction of oil prices. In an economy that remains weak and in excess supply, despite some resilience early in the year, these are the events most likely to determine whether interest rates move up or down from here. Nothing in April inflation data sticks out as moving the needle for rates.

Key Takeaways

• CPI rose 2.8% year over year in April, up from 2.4% in March. The increase in headline inflation was once again driven by a sharp rise in energy prices, specifically gasoline. This was lower than the median economist estimate of 3.1% and excluding gasoline, CPI rose at a slower pace of 2%. Some offsetting effects came from lower food, rent, and travel tours. Prices increased 0.4% monthly.
• The Bank of Canada’s core inflation measures improved in April, averaging (CPI trim and median) 2.1%, slightly better than 2.3% in March. Inflation momentum, measured by the three-month annualized growth rate, rose 1.8%, inching closer to the 2% inflation target.
• Gasoline prices accelerated in April, rising by 29% year-over-year, as both higher oil prices, and base-year effects catapulted the index higher. All together, gasoline added 1.2 percentage points to April headline inflation. A few additional factors impacted the category. The suspension of the federal excise tax dampened some of the upside price impact and the consumer carbon tax removal in April 2025 added to headline CPI through base-effects.

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