Gasoline Prices Fuel CPI Acceleration in April

In April, the Consumer Price Index (CPI) rose by 2.8 per cent year-over-year (y/y). This was higher than March’s 2.4 per cent increase.

Key insights

In April, the headline CPI continued to increase, reaching 2.8 per cent (y/y). The conflict in the Middle East and its impact on global energy markets has driven up the price of gasoline, jet fuel, and—through the pass-through of higher transportation costs—could gradually raise the prices of food and other goods. In April, gasoline was 28.6 per cent higher than a year ago. Base effects from the removal of Canada’s carbon tax have now been washed out of this figure, making year-over-year gas price growth more pronounced. These impacts were partially blunted by the federal fuel excise tax break, which will remove about 10 cents from the price of gasoline throughout most of the summer. However, core inflation measures—which gauge underlying or broader price pressures—cooled. Excluding food and gas, the CPI rose by 1.5 per cent in April—a significant deceleration from the 1.9 per cent gain in March. This highlights that the current runup in the CPI doesn’t represent generalized inflation at this point.

Oil prices remain high and will continue to keep the CPI elevated over the next several months—and potentially beyond. We expect that oil prices will decline following a resolution to the conflict in the Middle East. However, when this resolution will arrive is uncertain. Oil prices have been volatile and sensitive to any sign of progress—or faltering—in U.S.-Iran peace negotiations. The longer that trade through the Strait of Hormuz is disrupted, the higher the chance that upward pressure on Canada’s CPI will shift from being episodic to persistent. Structural damage to the global economy and upward shifts in Canadians’ inflation expectations could keep the CPI higher for longer.

Weak domestic demand remains a key downside drag on price growth. While commodity prices may remain elevated due to tighter supply conditions, weaker demand will limit some of the ability of businesses to pass on higher costs through to consumer prices. In Canada, economic growth remains hampered by U.S. tariffs and uncertainty about the future of the Canada-United States-Mexico Agreement. Weaker growth will moderate household income increases, and Canadians may be reticent to make discretionary purchases. In this context, many businesses will likely absorb a higher share of the cost increases to avoid eroding sales volumes.

For more details about the impact of the shifting geopolitical landscape and our research on Canada’s place in a changing world, please read more here.