Canada Inflation Slows to 1.7% on Energy, Carbon Tax Drop

Canada's annual inflation rate slowed to 1.7% in April, the lowest in eight months, primarily due to a steep 12.7% drop in energy prices driven by lower oil prices and the elimination of the federal consumer carbon tax. Despite this headline easing, core inflation measures excluding energy rose, with underlying price pressures intensifying as CPI excluding energy increased to 2.9% year-over-year from 2.5% in March. Food and services sectors showed resilience, with grocery prices rising 3.8% and restaurant prices increasing 3.6%, while travel tour prices rebounded significantly. Regional variations were observed, with Quebec being less affected by the carbon tax removal due to its cap-and-trade system. The Bank of Canada remains cautious, as recent inflation data does not fully reflect the impact of U.S. trade tariffs, adding uncertainty to future inflation trends and monetary policy decisions. Overall, while headline inflation cools, persistent core inflation pressures pose challenges for policymakers.