Model-based studies on the effect of carbon taxation point to sizeable inflationary effects. This column uses evidence from Canada and Europe over the past three decades to show that carbon taxes changed relative prices but did not increase the overall price level. Instead, they were slightly deflationary. In the case of British Columbia, the driver may have been a fall in household income depressing the prices of non-energy goods, which more than offset rising energy prices. The income compression was most pronounced among the richest households, suggesting that the redistribution scheme achieved its intended aim of favouring low-income households.