In April 2025, Canadian motorists experienced a decline in gasoline prices following the Liberal government's removal of the consumer carbon price. This change is expected by economists to assist in maintaining inflation around the Bank of Canada's two percent target amid ongoing tariff issues.

Statistics Canada is anticipated to release its Consumer Price Index (CPI) figures for April on Tuesday, just weeks ahead of the central bank's upcoming interest rate decision set for June 4. As of the latest assessments, economists project that inflation eased to 1.6 percent in April, a decrease from 2.3 percent in March, according to LSEG Data & Analytics.

The consumer carbon price, which had been approximately 18 cents per litre of gasoline, was eliminated at the start of April. This was one of the initial actions taken by Prime Minister Mark Carney after assuming office. Analysts estimate that eliminating the carbon price will reduce the headline inflation rate by approximately 0.7 percentage points in April, as per the Bank of Canada’s latest monetary policy report.

The Bank of Canada indicates that the impact of removing the carbon price will likely lower overall inflation figures by that margin monthly for the next year, after which the effects will not factor into annual comparisons. RBC forecasts that the annual inflation figure will stabilize at 1.6 percent for April.

RBC economists, Nathan Janzen and Abbey Xu, noted that Canadian inflation data remains "distorted" due to tax changes, particularly highlighting that the removal of the carbon price followed a two-month federal tax break on essential goods that ended in mid-February. Additionally, Tu Nguyen, an economist at RSM Canada, pointed out that lower global oil prices in April also contributed to decreased fuel costs for motorists.

Nguyen suggests that a slower global economy is anticipated for 2025, and OPEC countries have increased production, leading to reduced oil prices. She believes April's inflation figure could align closely with the Bank of Canada's two percent target, particularly as reduced shelter inflation linked to lower rent prices could influence overall inflation numbers.

However, there are concerns that any benefits from reduced transportation costs might not significantly impact supply chains due to the ongoing tariff disputes with the United States. Current U.S. tariffs on Canadian steel and aluminum—excluding certain goods like automobiles—could counterbalance any relief from cheaper gas prices, as businesses may need to adjust their supply chains or absorb higher costs due to tariffs.

Nguyen reasoned that the impact of the trade dispute may predominantly affect prices Canadians pay for new vehicles and specific auto components but asserted that these pressures would not drastically alter April's inflation figures. She referenced recent U.S. CPI data, which showed minimal effects from tariffs on American prices, implying similar outcomes for Canada.

The Bank of Canada decided to maintain its benchmark interest rate during its April meeting, following a series of seven consecutive rate cuts. Governor Tiff Macklem explicitly stated that the bank is awaiting more data on the ramifications of the trade dispute on the Canadian economy before making further adjustments. Nguyen highlighted potential signs of a weakening labor market, with Canada's unemployment rate rising to 6.9 percent. There are concerns that this trend in trade-sensitive sectors such as manufacturing might prompt the Bank of Canada to consider additional rate cuts in June.

TD Bank economist Marc Ercolao commented that the prevailing economic data increasingly indicates a deceleration in the Canadian economy, which offers the Bank of Canada the opportunity to implement another quarter-point rate cut during the June announcement. Current market speculation reflects over a 64 percent probability of a quarter-point cut by the Bank of Canada next month, based on LSEG Data & Analytics.

Nguyen anticipates two more quarter-point rate cuts this year, potentially lowering the central bank's policy rate to 2.25 percent. However, she believes that these cuts will not occur in succession as the Bank of Canada continues its cautious approach amidst the evolving trade landscape.