Canada’s annual inflation rate surged to 2.8% in April, primarily driven by steep increases in fuel prices, as reported by Statistics Canada. Energy prices saw a significant spike of 19.2% year-over-year in April, following a 3.9% rise the previous month.
Specifically, the cost of gasoline soared by 28.6% year-over-year due to supply constraints in the Strait of Hormuz and the switch to pricier summer gasoline blends. The ongoing conflict involving the U.S., Israel, and Iran has disrupted energy supplies, leading to global price hikes.
To counterbalance the inflationary pressure, the government temporarily suspended the fuel excise tax halfway through April, which helped to mitigate the impact of rising prices.
Notably, high energy prices were also a major contributor to the 2.4% inflation rate increase in March. Additionally, the decision by Ottawa to eliminate the consumer carbon price earlier than planned skewed the annual price comparison upwards in April.
In April 2025, removing the carbon price reduced gas prices by approximately 18 cents per liter. While this adjustment initially dampened the inflation rate over the past year, the absence of this reduction in the current annual comparison has pushed inflation higher.
In other sectors, clothing and footwear prices rose by 2% in April after a slight decline in March. Rents across the country climbed by 3.6% year-over-year, a decrease from the 4.2% increase in March, with British Columbia experiencing stagnant rent prices.
Food inflation slowed to 3.5% in April, down from 4% in March, with items like chicken, fresh vegetables, coffee, and tea witnessing a deceleration in price hikes after sharp increases earlier in the year.
Meanwhile, tour travel prices dropped by 11% in April, following an 11.5% increase in the previous month. Core inflation, which excludes volatile elements like fuel and food, rose at a much slower rate compared to overall inflation, indicating broader economic softness.
BMO chief economist Doug Porter highlighted that core inflation remains subdued, suggesting that rising energy costs may be causing consumers to curtail spending in other areas, exerting downward pressure on prices. CIBC senior economist Andrew Grantham noted that the subdued core inflation could alleviate inflationary pressures in other industries as energy costs continue to filter through the economy.