The cost of living jumped last month, as the War in Iran and blockade of the Strait of Hormuz caused gasoline prices to spike.

The national consumer price index (CPI) rose 2.8% in April on a year-over-year (y/y) basis. That’s the largest gain in nearly two years. Gasoline prices leaped 29% over April 2025, pushing headline inflation higher.* 

The good news? So far the energy price spike has not been accompanied by broader increases in the CPI basket of goods and services. Excluding gasoline prices, the CPI rose 2% y/y, a deceleration from the 2.2% pace set in March.

Further, the core inflation metrics used by the Bank of Canada to gauge underlying inflation are (so far) cooperating. Both the median (2.1% y/y) and trim (2.0% y/y) eased to their lowest levels since 2021.*  Even the old-fashioned core metric - CPI excluding food and energy - rose 1.5% y/y for its smallest annual gain since March 2021.**

So what’s been keeping inflation (excluding gasoline) at bay? Here are a few key examples:

- Food inflation, while stubbornly high, eased to 3.5% y/y from 4% in March.

- Rents for accommodation have been another inflation culprit, but its rate also came down last month to a four-year low of 3.5% y/y. We expect this downward trend to continue, as it takes time for the declines in asking rents to show up in average rents paid.

- Mortgage interest costs were a massive inflation driver during the rate hiking cycle, but fell (-0.1% y/y) for the first time since 2022. 
Every province excluding B.C. (smaller rent increases) saw its inflation rate accelerate last month. Alberta’s inflation rate came in at 3.2% y/y—its first reading above the national rate since March 2025. 

The Bank of Canada will not be surprised by today’s report, which was anticipated in the last Monetary Policy Report (indeed, they forecast that inflation “peaks at roughly 3% in April”).  If anything, they will take comfort in the milder core inflation readings, which reinforces our view that inflation was cooperating pre-war.

The key line from the last rate announcement is this: “Governing Council is looking through the war’s immediate impact on inflation but will not let higher energy prices become persistent inflation”.

In other words, it’s all about duration. If oil prices fall back, as expected in the futures market, the Bank of Canada will likely stay on hold as it balances a weak economy with the new inflation pressures. But if oil prices remain high, and more importantly spill into the broader inflation basket (or in the words of the Bank, inflation becomes “generalized”), the Bank has been clear they will need to raise rates. 

The bottom line is the Bank will stay in ‘wait-and-see’ mode. This report on its own should not raise any alarms and, combined with a sluggish labour market, should keep them on hold at the next meeting scheduled for June 10.

*The carbon tax removal (starting April 2025) of 17.6 cents per litre is out of the base period and no longer influencing the annual inflation rate. The federal gasoline tax temporary removal of 10 cents per litre (April 20 until Labour Day) will provide a partial offset in the months ahead.

**This footnote is for those screaming -  “what about year-ago base period effects!”. The month-over-month change in the three month moving average did tick up slightly for both the trim and median core measure, but are still holding around 2% (annualized)). In short, we’re not seeing the energy price spike feeding through the broader basket yet. But keep a close eye on this - it is early days.

Answer to the previous trivia question: Eleven members of the Walton family lived together in the same house on the 1970’s TV series The Waltons.

Today’s trivia question: What is disinflation?