With the carbon tax set to be scrapped next month, Canadians may be wondering exactly how much this will affect gas and food prices in Canada.
According to an analysis from Desjardins Economics released on Tuesday, Canadians can expect a drop in prices at the pump immediately, but it may take a while for their grocery bills to go down.
The report comes after Prime Minister Mark Carney announced that the federal government would be axing the consumer carbon tax in Canada as of April 1. The final Canada Carbon Rebate (CCR) will still be issued that month, but you’ll need to get your affairs in order to cash in.
Desjardins predicts that inflation will be about 0.7 per cent lower in April 2025 than it would have been if the carbon tax stayed.
More specifically, the report suggests that removing the price of pollution will drop gas prices by about $0.18 per litre on April 1 in provinces where the fuel charge is applied.
In comparison, the carbon tax in Canada was previously supposed to increase to $0.21 per litre and continue to increase in the following years.
“We expect the average price of gasoline to fall to $1.44 per litre on April 1 as opposed to $1.56, less than $0.18 per litre as the federal price on pollution doesn’t apply in all provinces,” reads the report.
Government of Canada and Desjardins Economic Studies
When it comes to the cost of food, Desjardins says two main channels affect the prices families pay at stores and restaurants. First is the cost of fuel for transportation, but the analysis does note that the CCR for small businesses means some of the carbon tax was ultimately reimbursed.
Second is the Farm Products Price Index, which measures the change through time in prices received by farmers from the sale of agricultural products.
“The impact of eliminating the price on pollution likely won’t show up in food prices as quickly as it will in the cost of fuel,” explained the report.
While there will be a temporary increase in food inflation in the first quarter of 2026 due to the GST holiday, Desjardins predicts that it will likely be only slightly lower next year due to the elimination of the carbon tax.
The analysis found that the impact of the axed carbon tax on other prices for Canadians will be even smaller.
Government of Canada and Desjardins Economic Studies
“Lower energy prices will weigh primarily on the prices of the transportation categories that are outside of gasoline; footwear and apparel; and alcohol, tobacco and cannabis among underlying inflation categories,” reads the report.
“Taken together, we expect core CPI inflation to end 2025 modestly below where it would have been if the price on pollution had remained in place.”
Desjardins says its estimation accounts for the fact that the federal price on pollution only applies to eight provinces: Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, and Ontario.
“As such, eliminating the federal price on pollution on a litre of gasoline won’t translate into a one-for-one reduction in the average price of a litre of gasoline in Canada,” explained the analysis.
Other provinces and territories have their own consumer carbon tax, and Desjardins says that if they choose to make changes, it will further affect immediate gas prices.
All in all, it says the elimination of the carbon tax in Canada “will modestly reduce headline inflation for a year.”
“It will also take some marginal pressure off inflation going forward, as the price on pollution increased steadily every year,” concluded the report.
