The Twenty-Four
In this week’s The Seven…
- It’s a gas, gas, gas - Monday’s inflation report
- Turning on a dime - Federal gas tax relief
- Big city slippage - Home prices in March
- The great migration - Allbirds pivots from shoes to AI
- Interesting Fact - Unconcerned about CUSMA
- Chart of the Week - Oil prices not sitting still
“To everything, turn, turn, turn/There is a season, turn, turn, turn”
—"Turn! Turn! Turn! (To Everything There Is a Season)" by Pete Seeger
Looking at the titles of our last three editions of The Twenty-Four, the phrases, “shadow of war,” “under pressure,” and “challenging conditions” form a gloomy picture. Between tariffs, high gas prices, and languishing productivity growth, we have good reason to be feeling on edge about the economy.
But it’s not all bad news. The ceasefires in the Middle East are fragile, but at least there has been some progress toward peace. Meanwhile, Canada, unlike a lot of other countries, isn’t facing energy shortages or spiking natural gas prices.
U.S. protectionism continues to bedevil the economy, especially in the areas directly affected by the sectoral tariffs, but the exemption from the blanket tariff for CUSMA-compliant goods is a major win for Canada given the alternative.
And while many households are struggling, consumer spending has been strong enough to keep the economy growing.
At the risk of seeing things through rose-coloured glasses, if the war ends soon, we emerge from this summer’s CUSMA review relatively unscathed, and overall economic growth enables more households to find their footing, the outlook is not too bad.
Like the snow that has blanketed large parts of the province this week (I know, I know, we need the moisture), spring is here and we just need a few sunny days for the green grass to appear.
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Coming on Monday - Gas price spike and inflation in March
Higher prices and the cost of living are on the minds of Canadians (67% of Canadians say the cost of living feels as bad as it ever has) and adding to the financial stress of many households. Monday’s inflation report for March is not going to help with the spike in gasoline prices expected to drive up the overall rate.
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In many ways, the March report is already old news as we look ahead to see how long the Iran war will keep oil, natural gas, and fertilizer prices elevated and, in turn, push up the costs of other goods and services due to higher input and transportation costs. The Bank of Canada can look past a relatively short spike, but things get trickier the longer the upward pressure lasts.
Oil prices have been all over the place since the conflict began (see our Chart of the Week below), but are likely going to stay elevated for some time. This points to the need to reduce inflation via tighter monetary policy (i.e., higher interest rates). This would, however, come at a time when the economy is fragile and, even though its mandate is to keep inflation on target, make the Bank of Canada reluctant to raise rates. In the face of these competing forces, our call remains that the Bank will stay on hold in 2026.
Less tax at the pump - Federal excise tax comes off on Monday
Speaking of gasoline prices, some relief is on the way courtesy of the federal government. Starting Monday, April 20, the 10 cents per litre Ottawa collects on gasoline (4 cents per litre on diesel) will be suspended until Labour Day (September 7). The excise tax on aviation fuel is also being suspended. The GST on gasoline remains in place. The federal government estimates that it will forgo $2.4 billion in tax revenue as a result of the policy change. The removal of the excise tax will reduce the cost at the pumps, but the situation in the Middle East will remain the more important factor in the total price.
The Alberta provincial government also has a gas tax relief program. Introduced in 2022, the 13-cent provincial fuel tax is reduced based on the average price of a barrel of West Texas Intermediate (WTI) oil over a specific period.* Reductions kick in at US$80 per barrel of WTI; the tax is entirely removed when WTI reaches US$90 per barrel. Fuel tax rates for gasoline and diesel are adjusted quarterly (January 1, April 1, July 1, October 1). The average price threshold was not reached prior to the April 1 adjustment date, so the tax was not reduced.
*The oil price average is based on the 20 trading days of WTI price data leading up to the 16th day of the month preceding the start of the next quarter.
Big city slippage - Benchmark home prices in Canada’s six largest metro areas
As we stressed last week, it's a misnomer to refer to a single Canadian housing market. What’s happening in Toronto may be fundamentally different than what is happening in Saskatoon. There is, however, a trend common across five out of the six metro areas in Canada with more than a million residents: the price of a benchmark home* in Toronto, Vancouver, Calgary, Edmonton, and Ottawa were all down in the first quarter compared to the same period last year. Montreal was the sole exception with prices up by 5%. Toronto saw the largest drop at 8% with prices down by about 2% in Edmonton and 3% in Calgary.
Location is a key factor in real estate, but so is timing. If, for example, you purchased the benchmark home in Toronto ten years ago, its current selling price is 45% higher. If, however, you bought it at the peak of the market in February 2022, the selling price today is 26% lower.
*A “benchmark home” is one whose attributes are typical of homes traded in the area where it’s located. The concept provides a better sense of price change over time than average prices which can be skewed by a few high or low-priced luxury sales.
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The great migration: Allbirds pivots from shoes to AI
The market has witnessed one of the most drastic pivots since Long Island Ice Tea rebranded as Long Blockchain. Allbirds, a company that sold shoes “inspired by natural materials,” has rebranded itself as an artificial intelligence company called NewBird AI. The company has sold its footwear assets to American Exchange Group to focus entirely on AI infrastructure.
The reason for the pivot is survival. After years of declining sales and a plummeting stock price, the company has opted to ditch the world of footwear in hopes of capitalizing on the AI wave.
The company secured US$50 million in funding from an undisclosed investor to purchase graphics processing units that they would loan out to customers.
The company’s stock price ballooned after the announcement before retreating, but remains well-above where it was prior to the pivot.
More broadly, there has been talk of the AI investment boom being a bubble that may not deliver on its promised returns as quickly as expected. While that remains to be seen, private construction of AI infrastructure doesn’t seem to be slowing down any time soon (see the chart below).
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Interesting Fact: Less than half of Canadians see the end of CUSMA as bad
A recent survey of 1,500 Canadians by Abacus found that only 45% think the end of the Canada-United States-Mexico Agreement (CUSMA) would be bad for Canada. A majority (55%) say it would either make no difference or be good for Canada.
This is a case in which public opinion does not match well with empirical analysis. As the Bank of Canada argues in its January 2026 Monetary Policy Report, “an unfavourable outcome of the [CUSMA] review would weaken the competitiveness of Canadian exports, lowering export volumes. Faced with weaker demand, exporters would reduce production, investment and hiring. This would spill over into the broader economy, weighing on sectors such as services and putting Canadian gross domestic product on a lower path.” That’s bad for Canada!
Some survey respondents may view free trade with the U.S. as good for Canada, but see CUSMA as a bad way of achieving it and, in turn, are hoping to see it replaced by a better agreement. Others may simply think free trade with the U.S. is a bad idea (the 1988 federal election was fought over this very issue) or be angry at the U.S. for how it has been treating Canada. Even so, there is clearly a large number of Canadians who don’t think an end to CUSMA is going to blow a large hole in the economy whereas a lot of economic analysis, including our own, suggests it will.
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Chart of the Week: Oil prices yo-yo on news from the Middle East
As of this morning, the U.S. and Iran were negotiating a three-page plan to end the conflict. As a result, the West Texas Intermediate (WTI) oil price benchmark has gone from about US$95 per barrel yesterday to around US$83 (though this could easily change by the time you read this).
Large price swings have been common since the conflict started at the end of February with the big question remaining where they will land over the longer term.
Before the conflict erupted, the general consensus was that oil prices would be relatively soft this year due to abundant supply. Our forecast from December was for WTI to average US$65 per barrel.
Early in the conflict, we adjusted this up to US$75 per barrel on the assumption that both the war and the physical disruption of the flow of oil would be short-lived. That was mid-March with the war dragging on another month since. As a result, US$75 is likely too low even if the peace talks are successful and the war officially ends in the next few days.
An end to the conflict would reduce the risk premium (though traders are likely to remain at least somewhat concerned that hostilities could flare up again), but it will take time for the physical movement of oil to normalize with the price staying higher than the pre-war estimates for weeks and perhaps months to come.
As always, we will be closely monitoring this. We are also working on an update to our oil price forecast and its impact on our outlook for the Alberta economy that we plan to have ready next week.
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Answer to the previous trivia question: The Edmonton Oilers have made it to the NHL playoffs for seven seasons in a row.
Today’s trivia question: When did Nike (which is still making shoes) introduce the Air Jordan sneaker?