Governing council sees tariffs and trade disruptions as key threats
Members of the Bank of Canada’s governing council expressed concern that underlying inflationary pressures driven by trade disruptions and geopolitical uncertainty could linger, according to meeting minutes released Tuesday. The central bank held its benchmark interest rate at 2.75% on June 4, citing the need for caution amid growing risks from U.S. tariffs and their impact on global supply chains.
The summary revealed that council members debated the surprising strength of recent inflation data and the difficulty in predicting how new trade dynamics might influence consumer prices. “Underlying inflationary pressures could persist for an extended period as consumers and businesses adapt to the rewiring of global trade,” the minutes noted.
Inflation outlook remains complex
Despite Canada’s headline inflation falling to 1.7% in April, largely due to tax policy adjustments, core inflation measures remained above the Bank’s 1% to 3% target range. When excluding tax impacts, inflation was measured at 2.3%, slightly above expectations and prompting concerns that price increases may be more entrenched than previously thought.
The council noted that businesses are increasingly passing on higher input costs to consumers. Surveys have also shown that consumers expect prices to continue rising. The members acknowledged that tracking the full impact of tariffs and cost increases across global supply chains will be challenging in the months ahead.
Tariffs cloud path for future rate cuts
Since June of last year, the Bank of Canada has cut rates by 225 basis points as inflation eased. However, the imposition of tariffs by U.S. President Donald Trump has introduced uncertainty into the central bank’s economic outlook. While the direct impact of retaliatory tariffs has not yet shown up in the data, members agree that ongoing trade tensions could add upward pressure to prices, especially for goods.
The governing council emphasized that any future policy decisions will depend on whether current inflation trends hold. “If the recent firmness in underlying inflation were to persist, it would be more difficult to cut the policy rate,” the summary said. Conversely, if economic conditions deteriorate and cost pressures ease, rate cuts may still be appropriate.
Careful monitoring ahead
The Bank plans to closely watch the evolution of inflation in light of competing forces: downward pressure from a weakening economy versus upward pressure from supply chain costs. With inflation dynamics more uncertain than ever, the central bank is expected to proceed cautiously in the coming months.
