![\"IMG_8529.jpg\"](\"https:\/\/www.europesays.com\/canada\/wp-content\/uploads\/2026\/05\/706f51fda981179b62f2e03dba068651.jpeg\")
The head office of the Bank of Canada located at 234 Wellington Street in Ottawa. (Credit: Adam Huras\/Brunswick News) <\/p>\n The head office of the Bank of Canada located at 234 Wellington Street in Ottawa. (Credit: Adam Huras\/Brunswick News) <\/p>\n
Weakness in core inflation measures amid spiking oil prices points to the Bank of Canada<\/a> having more flexibility to hold interest rates steady<\/a>, economists say.<\/p>\n The consumer price index<\/a> (CPI) accelerated to 2.8 per cent last month, according to Statistics Canada on Tuesday, but headline inflation was lower than economists\u2019 consensus<\/a> of 3.1 per cent and below the three per cent forecast by the central bank in its April monetary policy report.<\/p>\n Here\u2019s what economists think the latest data means for the Bank of Canada\u2019s next interest rate announcement on June 10.<\/p>\n Core price pressures \u2018nowhere to be seen\u2019:\u00a0Capital Economics <\/p>\n Capital Economics Ltd.<\/a> chief North America economist Stephen Brown said the \u201cdownside surprise\u201d on headline inflation was partly because food prices came in weaker than expected. <\/p>\n Overall food prices in the United States jumped 0.5 per cent between March and April to 3.2 per cent on an annualized basis, according to CPI data released last week. But food inflation in Canada slowed to 3.5 per cent in April from four per cent in March.<\/p>\n However, Brown said the surprise was mainly because the potential indirect effects of higher fuel costs aren\u2019t putting pressure on core inflation. Excluding food and energy, CPI slowed to 1.5 per cent in April, the lowest level since March 2021.\u00a0<\/p>\n He said the \u201ceven better news\u201d for the Bank of Canada is that the average annual rate for its preferred measures, CPI-trim and CPI-median, is also at a five-year low of 2.1 per cent. \u00a0<\/p>\n That partly reflects the softness of the labour market and consumer demand and reduces pressure on the central bank \u201cto follow through with the interest rate hikes that are priced into markets for the coming months,\u201d he said in a note.\u00a0<\/p>\n Inflationary fears \u2018off the mark\u2019:\u00a0Rosenberg Research <\/p>\n Aside from energy, inflation was \u201cnowhere to be found\u201d in April, Robert Embree, vice-president and senior economist at Rosenberg Research & Associates Inc.<\/a>, said.<\/p>\n \u201cThe key macro story is the broad-based cooling in all of the core inflation components, which gives the Bank of Canada plenty of room to consider cutting later in the year instead of hiking,\u201d he said in a note.\u00a0<\/p>\n He said markets still see almost two hikes priced in by the end of 2026, but that\u2019s a path that \u201crelies on a much more inflationary outcome\u201d than the data support.<\/p>\n \u201cWith Canada\u2019s jobs engine totally stalled out, the tighter-than-necessary financial conditions from the priced-in rate path are increasingly at odds with the underlying economic reality,\u201d he said.\u00a0<\/p>\n Embree said prices for services fell 0.3 per cent from March, \u201ceven without excluding energy-sensitive transport components.\u201d Year over year, service inflation grew 1.7 per cent.\u00a0<\/p>\n \u201cWithout any wage growth, we won\u2019t see any burst of services inflation,\u201d he said. \u201cUnemployment is too high to get significant inflationary pass-through from this energy shock.\u201d\u00a0<\/p>\n Economy still has slack:\u00a0CIBC <\/p>\n \u201cMuted\u201d core inflation supports the Bank of Canada\u2019s \u201cwait-and-see stance\u201d on interest rates, Andrew Grantham, executive director and senior economist at Canadian Imperial Bank of Commerce<\/a>, said.<\/p>\n \u201cWhile price pressures may accelerate further ahead, the weakness of core inflationary measures as oil prices were initially spiking is an indication of the slack that exists within the Canadian economy, which will continue to put downward pressure on inflation components that aren\u2019t greatly affected by oil prices,\u201d he said in a note.\u00a0<\/p>\n He said core measures of inflation are \u201clikely to accelerate again over the summer\u201d as airfare price increases show up in the data and higher transportation costs lead to prices rising in other areas, including food.\u00a0<\/p>\n \u201cHowever, the slack currently in the economy will limit the extent of that acceleration, and we continue to forecast that the Bank of Canada will hold its overnight rate at 2.25\u00a0per cent\u00a0throughout the\u00a0remainder of the year,\u201d he said.\u00a0<\/p>\n Rate hike bets pared back: KPMG Canada <\/p>\n The big question for the Bank of Canada is how much of the energy price shock will spill over into core inflation and when, Ali Jaffery, chief economist and partner at\u00a0KPMG Canada<\/a>, said.<\/p>\n \u201cBased on our modelling work, the pass-through into core inflation from an oil supply shock, in and of itself, should be fairly modest and could take about a year to materialize,\u201d he said in a note.\u00a0<\/p>\n While risks remain around the Iran war and the potential for broader supply chain disruptions, he said from an \u201cinflation point of view,\u201d it also matters that the energy shock is hitting an economy already facing a soft labour market, tepid growth and uncertainty around the state of Canada\u2013U.S. trade relations.\u00a0<\/p>\n \u201cThose forces matter a lot and will likely limit businesses\u2019 ability to pass on price gains from the energy shock,\u201d he said. \u201cWe continue to expect the Bank of Canada to remain on hold this year, assuming the conflict is resolved in the coming month or so.\u201d\u00a0<\/p>\n