Canada's annual inflation rate accelerated to 2.8% in April, up from 2.5% in March, according to data released by Statistics Canada on Tuesday. The increase was largely driven by higher prices for gasoline and diesel, which rose 6.3% year-over-year. Excluding energy, the inflation rate would have been 2.3%.
Energy Costs Drive Increase
Gasoline prices surged 8.1% compared to April 2025, while diesel prices climbed 7.4%. The rise in energy costs was attributed to higher crude oil prices and increased demand as the economy continues to recover. Food prices also contributed, with grocery costs up 3.2% annually, though this was a slight moderation from previous months.
Core Inflation Measures
The Bank of Canada's core inflation measures, which exclude volatile items like food and energy, averaged 2.5% in April, down from 2.6% in March. This suggests underlying price pressures are easing, which could give the central bank room to hold interest rates steady. The Bank of Canada has maintained its key interest rate at 4.5% since January, citing the need to bring inflation sustainably down to its 2% target.
Regional Variations
Inflation rates varied across provinces. Ontario saw the highest rate at 3.1%, while Alberta recorded the lowest at 2.4%. British Columbia and Quebec posted rates of 2.9% and 2.7%, respectively. The differences reflect regional energy costs and housing market conditions.
Housing Costs Remain Elevated
Shelter costs, including rent and mortgage interest, continued to rise sharply. Rent prices increased 7.8% year-over-year, while mortgage interest costs climbed 12.4%. These factors remain a key concern for policymakers, as housing affordability continues to challenge many Canadians.
Market Reaction
Financial markets showed little reaction to the data, as the figures were broadly in line with expectations. The Canadian dollar edged up slightly against the US dollar, trading at 73.5 cents US. Bond yields remained stable, with the 10-year government bond yield at 3.45%.
Economists predict that inflation will remain above the Bank of Canada's target for the rest of 2026, but should gradually decline as energy prices stabilize and supply chain disruptions ease. The central bank's next interest rate decision is scheduled for June 5.
