What Canada's 2.8% Inflation Reading Says About Energy and Core Pressures

Canada's inflation hit 2.8% in April 2026, the highest it's been since May 2024, but the headline number hides what's actually happening underneath. Gasoline jumped 28.6% year-over-year thanks to Middle East tensions pushing oil higher, plus a base-year effect from removing the consumer carbon levy in April 2025. Strip out energy and the picture changes completely—core inflation is cooling, not heating up.

This matters because it shows two different forces at work. Energy prices are squeezing households at the pump, but the broader inflation picture is softening. The Bank of Canada's preferred core gauges (trim and median) dropped to 2.05% in April, the lowest since January 2021. Inflation excluding food and energy fell to 1.5%, the lowest since March 2021. That's a big gap between what's happening with oil and what's happening everywhere else.

Gasoline prices are up hard, and that's the entire reason headline inflation came in at 2.8% instead of 2%. But central banks don't make policy decisions based on energy spikes that might reverse in three months. The Bank of Canada held its policy rate at 2.25% in April and Governor Tiff Macklem has said they're looking through the short-term energy impact. If you're watching this data trying to figure out where rates go next, the core measures matter way more than the headline.

The risk is duration. If gasoline stays elevated for months instead of weeks, some of that cost starts feeding into other prices. Transportation costs affect supply chains, which affect retail prices, which eventually show up in rent and services. But so far that's not happening. Rent growth slowed to 3.6% in April, the lowest since January 2022. Grocery prices rose 3.8%, down from 4.4% in March. The pass-through effect everyone worries about isn't showing up yet.

Economists surveyed by Bloomberg expected 3.1% inflation, so coming in at 2.8% is softer than the market was pricing. The loonie dropped about 0.2% to C$1.3766 after the release, and Canadian two-year bond yields fell four basis points to 3.03%. That's a dovish reaction—markets saw the core weakness and repriced rate expectations lower.

British Columbia was the only province where inflation didn't accelerate in April, and rent slowed the most there after four straight quarters of population decline. That's a direct link between migration flows and housing pressure. Prime Minister Mark Carney kept the immigration curbs that were put in place in 2024, and population growth has basically stopped. Less demand for housing shows up as slower rent growth.

Cumulatively, rent is still up 30.8% from April 2021, so the slowdown in growth rate doesn't mean housing is cheap. It just means the rate of increase is decelerating. If you're tracking inflation for trading purposes, the regional splits matter because they show where policy is working and where structural pressure remains.

The central bank isn't going to raise rates because of an energy spike they expect to fade, and they're not going to cut rates while headline inflation is still running at 2.8%. Macklem said in April that heightened uncertainty in the Middle East and on the US trade front means the bank might need to adjust policy in either direction, but "might need to" isn't the same as "will." That's central banker speak for "we're watching and waiting."

Shaun Osborne, chief currency strategist at Scotiabank, said after the release that "the Bank of Canada can be patient." Charles St-Arnaud, chief economist at Servus Credit Union, said the bank is "likely on hold for the rest of the year." Both are reading the same thing in the data—core is cooling, energy is temporary, and there's no urgent reason to move rates.

The key signal to watch going forward is whether core inflation stays stable. Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, pointed out that core held steady in April and some categories like food showed improvement. But he also noted that headline inflation moving closer to 3% into summer could test public patience, even if the underlying trend is disinflationary.

If you're trading Canadian assets—whether that's the loonie, Canadian bonds, or equity indices like the TSX—this data matters for two reasons. First, it keeps the Bank of Canada sidelined, which means rate volatility is low unless something breaks. Second, it shows the economy is cooling without collapsing, which is exactly what central banks want but rarely get.

The risk case is if energy prices stay elevated longer than expected and start feeding through to services and rent. That would force the Bank of Canada to choose between fighting inflation and avoiding a slowdown. Right now they don't have to make that choice because core is behaving.

If core inflation starts creeping back up in the next few months, that changes the setup completely. But as of April, the structure says "on hold" is the right call, and the market agrees.