Good morning. Today’s inflation report is expected to show a drop, driven mostly by the effects of a tax cut. Below, we look at why economists are peering beneath the surface and finding signs that underlying price pressures are uncomfortably persistent.
In the news
Labour: Canada Post says it has received strike notices from the union representing some 55,000 postal workers, with operations poised to shut down by the end of the week.
Energy: French energy group TotalEnergies said in a statement it had signed an agreement with Ksi Lisims LNG for the purchase of two million tonnes a year of LNG for 20 years from a future liquefaction plant.
Tourism: Canadian businesses are expecting a busy summer as more people opt to travel within the country rather than head south of the border.
On our radar
What we’re watching this week
- This morning: Canadian CPI for April. Analysts are forecasting a decline of 0.2 per cent from March and a rise of 1.6 per cent year-over-year.
- Wednesday: Canada’s new housing price index for April. Estimates are flat month-over-month and up 0.1 per cent year-over-year.
- Friday: Canadian retail sales for March. Economists are expecting a month-over-month decline when excluding automobiles.
A shopper at a T&T Supermarket in November.Chris Young/The Canadian Press
In focus
Deeper concerns beneath a slowing inflation rate
It might look like good news, but it’s a bit more complicated than that.
Statistics Canada is set to report a sharp slowdown in Canada’s inflation rate this morning, but economists say the decline stems from recent tax changes rather than a broader easing in prices.
RBC is forecasting annual consumer price growth to slow to 1.6 per cent in April, down from 2.3 per cent in March, driven largely by Prime Minister Mark Carney’s pre-election removal of the federal carbon tax on energy products.
Even so, The Globe’s Mark Rendell writes, Canada’s economy is entering a precarious phase – caught between tentative trade relief and signs of domestic strain. While U.S. President Donald Trump has paused some of his steepest tariffs, key Canadian sectors remain exposed, and economists warn that weakening job numbers, slowing manufacturing and investment delays all point to underlying pressure ahead.
Canada has avoided the worst-case trade scenario. Owing to exemptions granted for USMCA-compliant goods, most Canadian exports continue to cross the border tariff-free, and key carve-outs for vehicles and parts have softened the blow. “That dynamic really pivoted dramatically in April,” RBC’s Nathan Janzen told The Globe, adding that Canada now faces the smallest tariff increase among major U.S. trading partners.
Trade relief – but not much relief at home
Still, Canada is now one of many countries seeking trade relief from Washington – and it’s not high on the list. “I don’t think we’re on their A-list of needing to get results,” said Beata Caranci, chief economist at TD Bank. “China and the EU make the hot list.”
Warning signs in the real economy
The effects are beginning to appear in domestic data. In April, Canada’s unemployment rate rose to 6.9 per cent, and March manufacturing sales fell 1.4 per cent, led by a sharp drop in primary metals. Caranci expects a recession in the coming quarters, with another 100,000 job losses by fall.
Ottawa has also softened its own trade response. In mid-April, the federal government scaled back some retaliatory tariffs on U.S. imports used in Canadian manufacturing, food processing, and health sectors – a move that could ease price pressures and supply disruptions. Oxford Economics says this shift could make a difference for inflation and business costs in the months ahead.
What the Bank of Canada is watching now
Still, the Bank of Canada is focused on what happens beneath the surface. While the top-line inflation number will look better, RBC economists wrote on Friday, underlying price pressures aren’t easing much. Excluding food and energy, they expect core prices to rise to 2.6 per cent, up from 2.4 per cent in March. Food inflation is expected to hold at 3.2 per cent. Two of the Bank of Canada’s preferred metrics – which strip out unusually large or small price swings – are expected to stay just under 3 per cent.
The drop in inflation largely reflects tax changes, the economists wrote, noting that core inflation hasn’t shown meaningful improvement. April’s inflation figures are not expected to show significant tariff effects yet, though pressure could build in categories such as processed foods and industrial inputs.
Some consumer behaviour may already be shifting. In March, retail sales rose 0.7 per cent, reversing a February decline, as shoppers rushed to buy vehicles ahead of expected tariffs. That trend likely slowed in April, based on early reports, but overall spending has remained relatively steady, according to RBC’s tracking.
Bank of Canada Governor Tiff Macklem will weigh all of this carefully ahead of the next rate decision in June – the apparent cooling in inflation, the real persistence in core costs, and the broader volatility in global trade policy.
Charted
Cruel summer
Young Canadians have suffered the most in a weakening labour market – and the outlook doesn’t look great, either. As of early May, Matt Lundy reports, summer job postings on Indeed Canada were down 22 per cent from last year, according to a new report from the job-search site. The decline is being driven by summer camp roles, which have tumbled by 32 per cent.
Bookmarked
On our reading list
Hanging up: Why dividend investors should sell their BCE shares.
Hanging out: Doug Ford and Chrystia Freeland have a new shared goal: fixing internal trade.
Hanging tight: For the new Minister of AI, it’s easier to fail than to succeed.
Morning update
Global markets were up and Wall Street futures were lower as worries remained about the U.S. fiscal position. Investors were also eyeing potential trade breakthroughs with the G7 finance ministers set to meet.
Wall Street futures were down, while TSX futures rose ahead of inflation data.
Overseas, the pan-European STOXX 600 was up 0.51 per cent in midday trading. Britain’s FTSE 100 gained 0.47 per cent, Germany’s DAX rose 0.46 per cent and France’s CAC 40 was up 0.35 per cent.
In Asia, Japan’s Nikkei closed 0.08 per cent higher, while Hong Kong’s Hang Seng closed up 1.49 per cent.
The Canadian dollar traded at 71.70 U.S. cents.