Canada’s April inflation saw the Consumer Price Index (CPI) rise 1.7% year-on-year, down from March’s 2.3%. The monthly headline CPI decreased by 0.1%, a reduction from the previous 0.3% increase.

Excluding volatile items like food and energy, the core CPI reported a 2.5% annual rise and a 0.5% monthly increase. Consumer energy prices fell with gasoline dropping 18.1% year-on-year, largely due to the removal of the consumer carbon price.

Rising Food And Travel Prices

Food prices from stores increased 3.8% from the previous year, up from March’s 3.2%. Travel tour prices rose 6.7% annually, with a 3.7% monthly increase following an 8.0% decline in March.

Market movements saw the Canadian Dollar improve against most major currencies. The CAD gained 0.92% against the AUD and 0.09% against the USD.

The Bank of Canada paused rate changes recently due to trade policy uncertainties. Inflation scenarios speculate on varied impacts from potential trade tensions, with inflation possibly dipping to 1.5% in milder outcomes, or exceeding 3% amid prolonged trade conflicts.

Canada’s financial stability faces risks from US tariffs and retaliatory Canadian measures. The ongoing trade tensions pose threats to the economy’s resilience and financial sector stability.

Canadian Dollar Strengthens

With Canada’s latest inflation print showing CPI slowing to 1.7% year-over-year, the deceleration is becoming harder to overlook. After March had posted a 2.3% rise, April’s figures point to a quicker cooling than many had pencilled in. Month-on-month, price levels slipped 0.1%. That comes in stark contrast to the 0.3% climb in March and could be pointing to both seasonal effects and deeper structural moderation.

When we filter out energy and food — the notoriously jumpy components — core inflation ticks higher at 2.5% on an annual basis, up 0.5% from the previous month. The trimmed price sections show more persistence, which perhaps makes the current downtick in headline inflation a little less convincing for those watching for policy shifts. The energy component, meanwhile, took a beating, with gasoline prices plummeting 18.1% from the previous year. That drop lines up heavily with policy adjustments, notably the removal of the consumer carbon charge.

Food prices painted a different story altogether. Grocery bills edged up further, reaching a 3.8% annual increase — a tick higher than March’s 3.2%. That sort of trajectory signals that some inflationary pressure remains sticky, particularly in essential spending categories. The travel sector, too, saw a rebound. A steep month-on-month bounce of 3.7%, after the sharp fallback in March, adds volatility rather than clarity to overall inflation trends.

As for currency markets, the Canadian Dollar moved ahead across the board — making headway against the AUD and slightly strengthening against the USD. The move appears to be a blended reaction to both domestic data and external sentiment. It’s worth highlighting that the BoC had already frozen rates in recent decisions, citing uncertainty from wider trade policy noise. The bank’s approach, so far, benefits from the flexibility to wait for stronger direction either from inflation indicators or geopolitical shifts.

Projections suggest divergent paths depending on how long trade hostilities might last. A softer tone in trade negotiations could see inflation test 1.5%. The worst-case scenarios — ones that drag disputes forward for months — could push readings back above 3%, eroding any comfort from April’s easing.

There remains a less predictable undercurrent: US tariffs and Canada’s responses could lead to economic aftershocks. Those measures don’t just alter headline CPI but have the potential to disturb underlying financial mechanisms. Analysts are beginning to reprice risk across Canadian exposures — particularly in rates and short-term credit — as macro headwinds recalibrate inflation and GDP expectations.

Watching core measures remain slightly elevated complicates the picture for hedging or directional positioning. The Bank of Canada’s pause now carries softer conviction — further clarity in upcoming labour data and global trade flows will likely define the next wave of expectations. For now, two-way volatility might return as the base case, particularly in contracts sensitive to both rate outlooks and international trade channels.

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