Canada: Falling Gas Prices Mask an Acceleration in Underlying Inflation

Headline CPI inflation for April came in at 1.7% year-on-year (y/y), down from 2.3% y/y in March but above expectations for a 1.6% y/y print.

The deceleration was due to gasoline prices tumbling 18.1% y/y as the consumer carbon price was removed. Also notable was the bounce-back in travel tour prices, which rose 6.7% y/y in April after a 4.7% y/y fall in March.

Prices on food purchased from stores rose 3.8% y/y, also adding to April’s inflation.

The Bank of Canada’s (BoC) preferred “core” inflation measures both accelerated, with the CPI-Trim rising from 2.9% y/y to 3.1% y/y in April, and the CPI-Median jumping from 2.8% y/y to 3.2% y/y.

Key Implications

Top line inflation seemingly offered a reprieve, but the details of the report show that underlying inflation pressures picked up. Both of the BoC’s “core” measures showed a notable uptick in April, rising 0.2 and 0.4 percentage points in the month. Even the traditional “core” measure of CPI (excluding food and energy prices) rose from 2.4% in March to 2.6% in April. As highlighted in our prior commentary, we had expected the inflationary impacts of tariffs to start flowing through later in the second quarter of the year – the jump in April suggests this could be happening sooner than expected.

Today’s inflation print is a setback for the BoC and complicates the picture for the path of monetary policy. However, with the government of Canada offering a temporary reprieve on some tariffs, and the labour market slowing rapidly, we believe the central bank will have enough space to deliver two more cuts this year – adding a bit more support to an economy quickly losing momentum.