By Robb M. Stewart
OTTAWA--Inflation in Canada cooled sharply in April with the scrapping of the federal carbon tax, though households still faced some price pressures, including a rise in grocery costs.
The consumer-price index slipped 0.1% last month, the first monthly decline of the year, and was down 0.2% on a seasonally adjusted basis, Statistics Canada said Tuesday.
Year-over-year inflation softened to 1.7% in April, an eight-month low. That was modestly hotter than the 1.6% economists had expected but still returned inflation to below the Bank of Canada's 2% goal after two months above target.
The main driver of the slowdown was a retreat in energy costs, including an 18.1% drop in gasoline prices from a year earlier after the consumer portion of the federal government's carbon tax was axed, effective April 1. That masked possible early signs of the effects of higher tariffs, which are expected to lift some prices in the coming months.
Stripping out energy, annual inflation accelerated to 2.9% in April from a 2.5% advance the month before. That likely leaves the door open for the Bank of Canada to again lower interest rates.
The outlook for Canada's economy, which ended last year with a pickup in growth, has become uncertain since President Trump began unleashing his tariff policies in March. The Bank of Canada has forecast inflation will average 1.5% in the second quarter after heating up to 2.4% in the first three months of the year, while gross domestic product is expected to flatline or even contract this quarter as household demand and business investment weaken.
Annual growth in the central bank's preferred measures of core inflation, which exclude the effect of tax changes, heated up in April. Trimmed mean and weighted median CPI rose an average 3.15%, the fastest pace since last June, after holding roughly steady at 2.85% in March.
Ottawa's retaliatory tariffs in response to the Trump administration's import levies kicked in during April, though economists anticipate it will take some time for the effects of Canada's tariffs to work through inventories and supply chains. Per Bank, chief executive of big supermarket owner Loblaw, last week said customers should expect the number of items on store shelves affected by tariffs to surge in the coming weeks, notably pantry staples and health and beauty products.
Lower crude prices last month, amid a fall in global oil demand that coincided with slowing international trade, and supply increases from the Organization of the Petroleum Exporting Countries and its partners, added to downward pressure on Canadian energy prices.
Still, Canadians paid more for food at stores, with prices increasing 3.8% from a year earlier after an increase of 3.2% the month before. Prices for groceries have increased at a faster rate than the all-items consumer price index for three consecutive months.
Prices for food bought at restaurants also climbed in April and outpaced broader inflation, and the cost of travel tours increased year-over-year after a fall the month before.
Mortgage interest costs and rent, which have eased in recent months, remained the biggest contributors to annual inflation.
The Bank of Canada's governing council next meets to decide on monetary policy in early June, and economists believe there is room for officials to resume lowering interest rates after holding its fire in April following seven cuts in a row. The economy has already shown signs of losing momentum, manufacturing activity retreated in March, and the labor market is showing signs of stress with the jobless rate in April climbing to a five-month high.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
May 20, 2025 08:39 ET (12:39 GMT)
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