Canada’s annual inflation rate jumped to 2.8 per cent in April — the highest level in nearly two years — as surging gasoline prices tied to the war in Iran pushed costs higher across the country, according to data released by Statistics Canada Thursday.
Disregarding the global oil shock and energy prices pushing inflation higher, economists say the report was otherwise relatively encouraging, with many underlying price pressures remaining subdued and on target.
“If it was not for the war with Iran, the Bank of Canada would have toyed with the idea of cutting rates,” said CIBC deputy chief economist Benjamin Tal.
April’s report marked an acceleration from March’s 2.4 per cent annual inflation rate, with energy prices rising nearly 20 per cent year over year. Gasoline prices alone climbed 28.6 per cent compared to April 2025, while prices for fuel oil and other fuels rose more than 40 per cent.
Economists said the April data suggests rising fuel prices have not yet spread broadly through the economy, which is an important distinction for policymakers watching for signs that elevated energy costs could become entrenched in consumer prices.
“The key issue here is the duration of the conflict. The longer it lasts the more likely that higher energy inflation will start impacting the rest of the basket, and worse, might put higher pressure on inflation expectations,” Tal said. “In such a case the Bank of Canada will have little choice but to raise rates.”
BMO’s chief economist Douglas Porter said economists widely expected inflation to rise after gasoline prices surged throughout April, but the increase came in lower than many forecasts.
“Inflation outside gasoline prices was two per cent right on the button,” Porter said, noting that level aligns with the Bank of Canada’s inflation target. “This was not bad news.”
In Toronto, the average price of gasoline climbed by more than 50 cents per litre between December and April, rising from roughly $1.26 to $1.76. StatCan noted that the federal government’s temporary suspension of the fuel excise tax in mid-April helped moderate prices somewhat, though not enough to offset the broader rise in global oil prices.
Porter said the key concern now is whether elevated oil prices persist long enough to begin pushing up the cost of other goods, particularly food and consumer products that rely heavily on shipping and transportation.
So far, economists say there is little evidence of that happening.
Royce Mendes, head of macro strategy at Desjardins, said April’s inflation report showed broader price pressures remained “unusually muted,” despite concerns that rising oil prices would bleed into core inflation measures.
Prices excluding food and energy were unchanged in April, Mendes noted. He added that the breadth of unusually large price increases across the economy also narrowed in April.
“While that’s still slightly elevated, recent price dynamics suggest that metric should continue trending lower in the months to come,” Mendes said. “The soft inflation print gives the Bank of Canada ample scope to remain patient in assessing the fallout from higher oil prices.”
StatCan said prices rose faster in every province except British Columbia, where inflation did not accelerate year over year. Ontario recorded the country’s lowest inflation rate among the provinces at 2.4 per cent, which Porter attributed partly to cooling shelter costs and weakness in the housing market.
Meanwhile, prices for clothing and footwear rose two per cent nationally in April after falling 0.4 per cent in March, driven largely by a rise in women’s clothing prices.
Travel tour prices, however, fell 11 per cent last month after climbing 11.5 per cent in March, which StatCan said reflected seasonal demand patterns following the winter travel season.
While economists broadly agreed the latest report does not yet warrant interest rate hikes, some warned that prolonged instability in the Middle East could keep inflation elevated well into next year.
Fuel analyst Roger McKnight said inflation numbers should continue to be upheld as long as any solution to the war in Iran remains precarious.
“Inventories of crude oil, gasoline, diesel and jet fuel are reaching dangerously low and will drive up the cost of all refined products,” McKnight said, adding that even if the conflict ended immediately, consumers might not see meaningful relief at the pumps for several weeks and the “economic barrage” could extend into early 2027.
“There is no short-term relief in sight.”
With files from The Canadian Press
