If your wallet felt a little fatter at the pumps this holiday weekend, you weren’t alone after Victoria Day gas prices fell to the lowest in almost four years thanks to the removal of the carbon tax.
But that was espeically so in Saskatchewan, where Flatlanders were able to fill up for as low as 99 cents per litre, compared to an average of about $1.30 in Calgary.
Nonetheless, lower gas prices helped push the national inflation rate to its lowest level in over a year, according to Statistics Canada, raising hopes for further interest rate cuts this year.
That’s because Statistics Canada reported on Tuesday that annual inflation slowed to 1.7% last month, down from 2.3% in March, fuelled by an 18% drop in fuel prices compared to the same time last year.
The free-fall was driven in part by lower global oil prices and higher OPEC output, but the main catalyst was the elimination of the federal carbon price on fuels, which had added about 17.6 cents per litre.
It was further enhanced by the decision of the Alberta and Saskatchewan governments to suspend their respective industrial carbon taxes earlier this month.
“The effects of the federal consumer carbon levy’s demise seem to be holding,” said Roger McKnight, chief petroleum analyst at En-Pro International. “Prices remain about 15 cents per litre lower than before the change took effect.”
But McKnight and other analysts warn that consumers shouldn’t get too comfortable with the current price break. The broader inflation outlook is being complicated by a volatile mix of geopolitical uncertainty and domestic policy changes, including the federal government’s evolving climate strategy.
Prime Minister Mark Carney’s newly announced industrial carbon tax reform, which replaces the consumer levy, is expected to increase compliance costs for large emitters later this year. Though the consumer-facing price has dropped for now, some economists warn the benefit may be temporary.
“There’s a risk that any inflation relief from the removal of the consumer carbon tax could be offset by price pressures linked to the industrial carbon tax and supply chain disruptions tied to escalating trade tensions,” said Andrew Grantham, senior economist at CIBC.
Those tensions are growing as US President Donald Trump ramps up protectionist rhetoric ahead of the 2026 election cycle, fuelling uncertainty in global markets.
McKnight cautioned that even small shifts in tone from Trump — known for disrupting markets with erratic statements — could “throw any logical mathematical explanation completely out the window.”
Meanwhile, the Bank of Canada faces a complicated decision ahead of its next interest rate meeting on June 4. While headline inflation has cooled, core inflation — which strips out volatile items like energy — climbed above 3% in April.
Excluding energy costs, StatsCan said April’s inflation rate would have been 2.9%, up from 2.5% in March. Grocery prices also remain high, with food rising 3.8% annually, driven by steep increases in beef, coffee, and fresh vegetables.
Adding further pressure, the national jobless rate ticked up to 6.9%, as the trade-exposed manufacturing sector slowed.
Economists say the Bank of Canada is stuck between a rock and a hard place of weak economic signals and stubbornly high inflation in key categories.
TD Bank’s Andrew Hencic echoed that view, noting the April inflation report “complicates” the central bank’s path forward. TD still forecasts two rate cuts this year, though the odds of a move in June have fallen sharply.
The bottom line for consumers: inflation may be cooling for now, but ongoing uncertainty around energy policy, trade, and global oil prices means the relief at the pump could be short-lived.