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Canada’s inflation rate dropped down sharply in April, and one analyst says a lot of the decline comes down to the end of the consumer carbon tax.
According to Statistics Canada, the inflation rate cooled to 1.7 percent last month, down from 2.3 percent in March. Canadians primarily found respite at the gas pumps, though food prices continued their upward trend.
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“It was the elimination of the carbon tax that just brought inflation down… and this probably means that the Bank of Canada is going to be able to feel more comfortable lowering interest rates as we go forward,” business analyst Paul Martin explained during an interview with host Justin Blackwell on Saskatchewan Afternoon.
“That will create more of a space between Canada and the U.S., which is also problematic and it might affect the value that spreads between the Canadian and U.S. dollars,” said Martin.
During his swearing-in ceremony in March, Prime Minister Mark Carney announced that his government would be cancelling the consumer carbon tax as his first move as prime minister.
The tax come to an end on April 1, the same date it was initially expected to rise by another $15 to $95 per ton of greenhouse gas emissions.
Martin said that the move will ultimately help consumers, but they should make sure to pay close attention to the reasons why inflation was higher to begin with.
“The government’s been a big contributor to inflation, and when the feds decided to take themselves out of it it’s just so noticeable, and probably other levels of government can figure that out too,” he said.
“The moral of the story here is, it’s not the marketplace that’s causing this grief – it’s governments.”
“Whether it’s tariffs or taxation levels, businesses and real people have had to trim their expenses,” the analyst added.
“They’ve had to deal with this reality. I don’t think you’ve seen the government put the same discipline in.”
As for whether the trend will continue, Martin said that it depends on the choices governments make.
“You’re going to see that inflation will stay lower because the carbon tax has gone for the full 12-month cycle,” he said.
“A year from now this will be the baseline, and you’ll probably see inflation likely going back up again, because prices do increase and tariffs are going to get in the way of that. But, you know, for now, as long as they don’t reinstate the carbon tax, I think we’re probably going to be in pretty good shape, inflation-wise.”
But while gas prices dropped, Canadians saw food prices continue to rise in April.
Statistics Canada said prices for food bought from stores increased 3.8 percent on a year-over-year basis last month, up from a 3.2 percent annual increase in March. April marked the third straight month that grocery price increases outpaced the overall inflation rate. Fresh vegetables, beef, coffee and tea were some of the items costing Canadians more on an annual basis.
Canada also saw a hit to the job market last month, mainly believed to be because of the tariff battle between Canada and the United States. Statistics Canada’s data show the unemployment rate rose to 6.9 percent last month.
The Bank of Canada will make its next interest rate announcement in early June.
–with files from the Canadian Press
