TORONTO – Statistics Canada is scheduled to release tomorrow its April consumer price index data. The new inflation reading comes two weeks before the Bank of Canada’s next interest rate decision, scheduled for June 4. And the forecast – made last Friday by economists at LSEG Data & Analytics – predicts that April inflation will fall to 1.6%. Same forecast comes from RBC’s experts: annual inflation will fall to 1.6% in April from 2.3% in March.

Therefore, a reduction of 0.7 percentage points has been predicted by the calculations of the latest report on monetary policy by the Bank of Canada: according to it, this reduction is due to the elimination of the consumer carbon tax that weighed about 18 cents per litre of gasoline. After the cut wanted by the new Prime Minister Mark Carney, Canadian motorists have actually paid less for fuel. And the Bank of Canada expects the end of the carbon price will lower the overall inflation figures by roughly that amount each month for the coming year, after which the removal of the levy will fall out of the annual comparison.

As The Canadian Press reports, RBC economists Nathan Janzen and Abbey Xu said in a note to clients on Friday that Canadian inflation data continues to be “distorted” by tax changes, with the elimination of the carbon tax following the end of a two-month federal tax break on a variety of goods in mid-February.

Tu Nguyen, an economist at RSM Canada, also said April inflation will come “fairly close” to the Bank of Canada’s 2% target, as a slowdown in housing inflation linked to lower rents further drags down the headline figure. However, she added, hopes that lower transportation costs will be passed through supply chains may be dashed as April marked the first full month of the tariff dispute between Canada and the United States. The U.S. has famously imposed tariffs on Canadian steel and aluminum, with some exceptions for certain goods. Canada’s counter-tariffs, which target billions of dollars of goods coming from south of the border, also have some exemptions. But any relief companies get from lower gasoline costs could end up being “nullified” by trade uncertainty, Nguyen said, as companies reorient their supply chains away from the U.S. or absorb the impact of the tariffs — either way, driving up their costs. The trade dispute will therefore mainly affect the prices Canadians pay for new vehicles or some auto parts, but Nguyen does not believe those forces are enough to push up the April inflation reading.

The Bank of Canada kept its benchmark interest rate unchanged in April, after seven consecutive cuts. Governor Tiff Macklem made it clear that the Canadian central bank was opting to hold rates pending further data on the impact of the trade dispute on the Canadian economy.

According to economist Nguyen, signs of weakness in the labor market — Canada’s unemployment rate rose to 6.9% last month, with trade-sensitive sectors such as manufacturing shedding jobs — could be enough to push the Bank of Canada to make further cuts in June.

TD Bank economist Marc Ercolao said Friday that incoming data “increasingly paints a picture of a slowing Canadian economy. In our view, the current situation gives the Bank of Canada room to cut its benchmark rate by another quarter point at its June announcement” he added.

Nguyen also said there could be further quarter-percentage point rate cuts this year, taking the Canadian central bank’s benchmark rate to 2.25%, but these cuts may not be consecutive, as the Bank of Canada maintains its wait-and-see approach as the trade war continues, leaving everything uncertain.

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