Toronto on the Pulse: What's Shaking Up Canada's Inflation Rate in April 2025?
Anticipated drop in consumer carbon price pressure on April inflation rate to 1.6% as per economist forecasts
Hey there! Let's dive into Canada's economics scene and find out what's causing ripples in the inflation rate this April.
Canadian drivers are rejoicing as fuel prices drop after the federal government dropped the consumer carbon tax - yep, the ol' CTP, costing roughly 18 cents per litre of gasoline before its elimination. Economists calculate this shock move knocked roughly 0.7 percentage points off the headline inflation rate for April.
But that's not all! RBC expects the annual inflation rate to cool down to 1.6% in April, a sharp drop compared to the 2.3% recorded in March. Yeah, we know what you're thinking - less inflation means more savings for consumers, right? Well, maybe not quite so fast.
But why? Here's the kicker: despite cheaper gasoline, RBC economists warn that trade tensions might dampen the positive effects of lower transportation costs. This is because the ongoing trade dispute with the States might lead businesses to reorient their supply chains or absorb the pain of tariffs, ultimately pushing their costs higher.
You see, the U.S. has slapped tariffs on Canadian steel and aluminum, with some exceptions for goods like automobiles. In response, Ottawa has slapped tariffs on billions of dollars worth of American goods, but with some exemptions too. This dance might not be doing much to help out consumer pocketbooks, as the trade dispute will likely surge prices of new vehicles and certain auto parts.
So far, there's little evidence that these tariffs are sparking inflation to soar south of the border, according to Canadian economist Tu Nguyen, so expectations for a dramatic difference in the headline number aren't too high.
As for the Bank of Canada's next move, they kept the benchmark interest rate steady in April after seven consecutive cuts. Governor Tiff Macklem made it clear that the central bank was taking a wait-and-see approach as it collects more data on trade tensions' impact on the economy.
Some experts like TD Bank economist Marc Ercolao believe that incoming data points to a slowing Canadian economy, signaling room for another quarter-point rate cut in June. As of now, money markets put odds above 64% for a cut next month.
Economist Tu Nguyen predicts two additional rate cuts by the end of this year, bringing the central bank's policy rate down to 2.25%.
But remember, these predictions are just educated guesses. Why? Because politics, global oil prices, and trade tensions can be a fickle trifecta that keeps economists on their toes!
Stay tuned for more updates on Canada's economic landscape as we navigate through these choppy trade waters. And remember - knowledge is power, but understanding the big picture will keep your portfolio fired up!
This report was first published May 18, 2025.
[Enrichment Insights]1. The elimination of the consumer carbon tax could reduce inflationary pressures due to lower energy and goods costs for consumers.2. Trade tensions between Canada and the US may lead to price increases for consumers, offsetting the potential benefits of lower energy costs.3. Global oil prices can significantly impact inflation rates, with higher prices potentially driving up overall inflation.
- The drop in fuel prices, following the federal government's elimination of the consumer carbon tax, is predicted to lower the headline inflation rate in April.
- Trade tensions between Canada and the United States may undermine the positive effects of decreased transportation costs by causing businesses to readjust their supply chains or incur higher costs.
- RBC economists have expressed concerns that ongoing trade disputes might cause prices of new vehicles and specific auto parts to surge.
- Economists' hedging on inflation rate predictions also accounts for various factors such as political fluctuations, global oil prices, and the ongoing trade tensions.
