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Economic Viewpoint

The Impact on Inflation of Recent Changes to Federal Pollution Pricing

March 18, 2025
Randall Bartlett, Deputy Chief Economist
Marc-Antoine Dumont, Senior Economist • LJ Valencia, Economic Analyst

Highlights

  • With Canada’s new Prime Minister having announced that the federal price on pollution will be eliminated, members and clients have asked: what will be the impact on inflation?
  • We’ve estimated that total CPI inflation will be about 0.7 percentage points lower in April 2025 than it would have been if the price on pollution were maintained. More specifically, we now expect year-over-year price growth to advance by 2.1% y/y in April 2025, versus 2.7% in our forecast including pollution pricing.
  • But it should be noted that this is largely a one-time drop in the price level. As such, we expect total CPI inflation to remain below our previous forecast from April 2025 through March 2026, but to then broadly return to its previous path.
  • Our analysis corroborates the conclusions reached by the Bank of Canada—the elimination of the price on pollution will modestly reduce headline inflation for a year. It will also take some marginal pressure off inflation going forward, as the price on pollution was set to increase steadily every year.
NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.