By David Ljunggren

OTTAWA (Reuters) -Canada's annual inflation rate fell to 1.7% in April due to a drop in energy prices, but analysts said a rise in closely watched core measures would make life hard for the Bank of Canada as it ponders its next rate move.

The overall inflation rate fell from 2.3% in March after the removal of a federal consumer carbon tax, Statistics Canada said on Tuesday.

Analysts had forecast the annual rate would ease to 1.6% while the Bank of Canada last month predicted it would fall to about 1.5%, mainly due to the removal of the carbon tax and lower crude prices.

After seven consecutive cuts since last June the Bank held rates on April 16 while saying it would be ready to move decisively if needed to keep inflation under control.

The bank - which is due to unveil its next rate decision on June 4 - says the effect of U.S. tariffs is hard to predict, while noting the measures in place are already hurting the Canadian economy.

The bank pays particular attention to the core measures of inflation, which strip out the prices of more volatile items and do not take into account the removal of the carbon tax.

CPI median, which shows the median inflation rate across CPI components, rose from 2.8% in March to 3.2% in April, the highest since March 2024.

CPI trim, which excludes upside and downside outliers, edged up from 2.9% to 3.1%, also a 13-month high.

"Signs of renewed weakening in the economy on one hand ... but stronger core inflation on the other makes for a tough decision for the Bank of Canada," said Andrew Grantham, senior economist at CIBC Capital Markets.

The odds for a rate cut dipped to 40% from 65% before the release, currency swap market bets showed.

Overall energy prices plunged 12.7% last month from April 2024 as gasoline prices fell by 18.1% from a year earlier, while year-over-year prices for natural gas dropped 14.1%.

Consumers, though, paid 3.8% more for groceries than they had done a year previously, up from 3.2% in March. Year over year, prices for travel tours rose 6.7% in April.

On a month-by-month basis, inflation dipped by 0.1% compared to analysts' forecasts of a 0.2% drop.

Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, said the data right now did not suggest the bank needed to cut rates.

"But obviously the significant uncertainty around trade tensions would be supportive of additional fiscal signals, so it creates a very difficult balance," he said.

The Canadian dollar strengthened 0.1% to C$1.3930 to the U.S. dollar, or 71.79 U.S. cents.