The Bank of Canada gets one last inflation reading before its June rate decision
Economists say the Bank of Canada can hold rates steady after core inflation cooled in April, even as headline inflation climbed to 2.8 percent — its highest since May 2024.
The headline number came in well below analyst expectations.
A Reuters poll had forecast 3.1 percent; the actual monthly gain of 0.4 percent also undercut the 0.7 percent consensus.
Gasoline prices jumped 28.6 percent year over year in April, up from 5.9 percent in March, as the Iran war shuttered the Strait of Hormuz and sent global crude prices sharply higher.
BNN Bloomberg reported the switch to pricier summer fuel blends compounded the pressure.
Fuel oil and other fuels rose 41.3 percent annually, Statistics Canada said.
Two policy-driven distortions amplified the energy reading further.
The carbon levy removal in April 2025 has now dropped out of the 12-month comparison, pushing year-over-year inflation higher, Statistics Canada reported.
Ottawa's mid-month suspension of the federal fuel excise tax, worth roughly 10 cents per litre, partially offset the increase.
While headline inflation accelerated, the measures the Bank of Canada watches most closely moved the other way.
According to Reuters, CPI-trim fell to 2.0 percent from 2.2 percent in March; CPI-median dropped to 2.1 percent from 2.3 percent.
Businesses are struggling to pass higher costs on to consumers, TD senior economist Andrew Hencic and BMO chief economist Doug Porter cited by the Financial Post, pointing to median core inflation falling from 2.8 percent in November 2025 to 2.1 percent in April.
Porter told investors the report was “unambiguously soft” beyond gasoline prices. “If it weren’t for those bothersome items like filling up your car and paying for groceries, there would be almost no inflation,” he wrote.
TD senior economist Leslie Preston said the core readings offered “little argument” for rate hikes, BNN Bloomberg reported.
In the same article, CIBC senior economist Andrew Grantham said slack in the Canadian economy will continue to keep a lid on broader inflation even as gas prices work through other components.
CIBC continues to see the Bank of Canada holding rates steady throughout 2026, he added.
BMO managing director and Canadian rates and macro strategist Benjamin Reitzes said the April report “puts exactly no pressure” on the Bank of Canada to raise rates, and that the central bank is likely clear to hold through the summer and early fall.
Rate hike talk could resurface if energy pressures begin spreading into other basket components “but that’s just not where we are right now,” Reitzes said.
“Canadians’ patience may be tested as headline inflation moves closer to 3 percent heading into the summer,” said Andrew DiCapua, principal economist at the Business Data Lab and Canadian Chamber of Commerce, noting April data still kept inflation below the Bank of Canada’s upper bound.
DiCapua said nothing in the April figures moves the needle on rates in either direction.
The bigger concern, several economists said, is what happens next.
CIBC’s Grantham noted that higher airfares tied to spiking fuel costs were not captured in April data, since airfare transactions are recorded when the flight is taken rather than when the ticket is purchased, the same article reported.
Those pressures are likely to show up in summer readings, he said.
Porter said he would not be surprised if gasoline prices push inflation to 3 percent or higher in May and June, the Financial Post reported.
“The longer this war lasts, the more likely it is that we’re going to have this inflation build into expectations, and it becomes much tougher for central banks to deal with,” Signal49 chief economist Pedro Antunes told BNN Bloomberg.
He added that the Bank of Canada's only lever is rate hikes in an already weakened economy.
Porter added that CUSMA uncertainty will further weigh on growth. “I think the economy will struggle to grow this year. I think that’s the cold hard reality,” he told the Financial Post.
The April report is the last inflation data the Bank of Canada will see before its June 10 rate decision.
The central bank has held its policy rate at 2.25 percent across its last four decisions.
After the CPI release, money markets were pricing in a 25 basis point hike only in October, Reuters reported
