Canadian CPI comes in at 1.7% in April as energy prices plunge

The latest Canadian inflation numbers are a tale of two data sets – at first glance, April’s headline number of 1.7% looks promising, coming in below the Bank of Canada’s 2% target, and below the 2.3% that was recorded in March. 

However, deep drops in energy costs – both due to the removal of the consumer carbon tax and price cuts at the gas pump – are hiding stickier cost increases, which will prove to be a concern for consumers and our central bank. According to Statistics Canada, gas prices plunged 18.1% year over year in April, compared to March’s scant 1.6% decrease. The price drop is a result of overall lower global demand for oil, as tariffs batter trade, and OPEC increases its supply output. With the energy component stripped out, inflation would have come in at 2.9% in April.

Consumer prices are already on the rise

Once these baseline effects subside, future inflation reports will likely better show how higher prices are working their way through the Canadian economy. This is already being felt at the grocery store, as food costs are steadily increasing. According to StatCan, overall costs for food purchased in stores rose 3.8% in April, outpacing the all-items CPI for the third month in a row.  The largest price spikes were seen for fresh vegetables (+3.7%), fresh or frozen beef (+16.2%), coffee and tea (+13.4%), sugar and confectionery (+8.6%) and other food preparations (+3.2%).

Prices for food purchased from restaurants are also on the rise, increasing 3.6% year over year, following a 3.2% uptick in March.

Core inflation measures increase above 3%

The main thorn in the Bank of Canada's side, though, will be the measures of Core inflation, which show varying snapshots of price growth with the extremes stripped out. The two main measures the central bank observes – called the CPI median and CPI trim – both rose above 3% in April, at 3.2% and 3.1%, respectively.

Again, this was largely due to rising food costs. Economists had largely anticipated these core numbers would be unchanged in this report, so their increase will be troubling for central bank policymakers, who strive to keep inflation within a 2% target.

The impact of April’s inflation report on mortgage rates

A muddled outlook on inflation could spell higher or stagnant interest rates in the short term, a turnaround from the discounts mortgage shoppers have enjoyed in recent months. According to StatCan, mortgage interest costs rose 6.8% year over year, down from 7.9% in March, 9% in February, and 10.2% in January. Overall shelter costs came in at 3.4%, up 0.1% from March.

These borrowing cost decreases are due to a series of rate cuts from the Bank of Canada between June 2024 and March 2025, which impacted variable mortgage rates, as well as lower bond yields, which pulled down the fixed mortgage rates offered by lenders.

Fixed rates were especially low in early April, as US and Canadian  bond yields plunged amid tariff-induced market chaos. However, yields have since ticked back up, as investors remain wary of US-backed assets; as of this morning, the Government of Canada five-year yield, which largely underpins the cost of five-rate borrowing, has increased to the upper 2.8% range. 

This latest CPI report also puts the Bank of Canada in a tricky position, as the headline number, combined with April’s weak jobs report, gives it room to cut rates in the short term, but the core measures indicate prices are poised to rise. It will need to weigh the risks of delaying stimulus with stoking inflation in its upcoming announcement on June 4th.

How does inflation impact savings and investments?

In general, higher inflation is bad news for investors, as it eats into returns. However, there’s a silver lining for savers and more passive investors, such as those holding Guaranteed Income Certificates (GICs). Similarly to variable mortgage rates, GICs, as well as high-interest savings accounts, have a rate of return based on the Bank of Canada’s benchmark overnight lending rate, which it either increases or decreases to keep inflation under control. 

While this latest lower headline number means a rate hike is likely off the table in the BoC’s next announcement on June 4th, April’s conflicting core measures could prompt it to hold off on further cuts until it has more overall economic data; this would preserve the rates currently enjoyed by savers and GIC holders. 

Also read:

• Inflation and the Consumer Price Index in Canada
• Bank of Canada holds target interest rate at 2.75% in April 2025 announcement
• March CPI comes in surprisingly low at 2.3%
• How US tariffs can impact you