While the removal of the consumer carbon tax had an immediate impact on inflation, the Bank of Canada is waiting to see what effect U.S. tariffs and counter-tariffs will have on the economy before making any further adjustments to the prime interest rate.
The Bank of Canada held its interest rate at 2.75 per cent in its policy update yesterday.
Governor Tiff Macklem says inflation dropped once the carbon tax came off on April 1.
“This knocked .6 per centage points off inflation in April, largely due to lower gasoline prices, and pulled headline inflation down to 1.7 per cent,” says Macklem. However, inflation, excluding taxes, was 2.3 per cent in April, slightly stronger than the Bank of Canada expected—up from 2.1 per cent in March.
Bank of Canada Governor Tiff Macklem, June 2025 (CPAC)
He says higher core inflation may be partly due to higher goods prices like food.
Macklem says that may reflect the effects of trade disruptions. “Many businesses are telling us they are already facing higher costs related to finding alternative suppliers and developing new markets.” That’s something the Bank of Canada will be watching closely.
