(Ottawa) The Bank of Canada will be able to see next week if the trade war has already had effects on inflation.
Statistics Canada must publish its consumer price index (IPC) for the month of May. Experts expect it to exceed 1.8 % reached in April.
The Governor of the Bank of Canada, Tiff Macklem, recently declared that it was difficult to have a good portrait of inflation at present because of the trade war that hangs over the heads of companies and the end of the taxation of the carbon tax.
Photo Adrian Wyld, Canadian Press Archives
Tiff Macklem, Governor of the Bank of Canada
The central bank had decided to maintain its key rate at 2.75 % for a second month in a row. She is waiting to see if the customs duties imposed by US President Donald Trump have already had effects on prices.
The Bank of Canada will examine two reports on inflation before the next rate announcement, scheduled for July 30.
Economic slowdown
Benjamin Reitzes, a BMO economist, believes that it is likely that Canada Bank decides to decrease its key rate if it notes signs that inflation has been contained since the start of the trade war. It provides that inflation has decreased by two percentage points to 1.5 % for May.
According to him, the Bank of Canada will also be attentive to other elements of the current economic landscape.
“The reality is that it will not take into account a single data. She examines a series of measures to better understand the underlying trends, ”says Reitzes.
An economic slowdown could also convince companies and consumers to slow down their expenses, which would calm inflationary pressures.
Katherine Judge, main economist at CIBC capital markets, believes that inflation could slightly climb due to customs duties.
“The increase will be largely linked to the prices of foods which undergo the effects of countermeasures and those of basic products which could start to reflect customs duties,” she said in a report to the bank’s customers on Friday.
It points out that the next analyzes will reflect the adjustments that Statistics Canada has brought to its IPC basket, but they usually have no major consequences on the main data.
Mr. Reitzes says it is difficult to correctly assess the effects of inflation rights.
“The Bank of Canada must surely examine all of this. She has an army of economists at her service. They will read the data to see if there are signs. »»
Canadian Dollar weakness
The price of food has climbed in recent months. This is a sector where Canada has adopted reprisal measures against the United States, Reitzes notes. However, this increase may also be caused by the weakness of the Canadian dollar at the start of the year.
The other source of disruption for inflation data is the federal government’s tax policy in the first months of 2025.
Ottawa had granted TPS leave for certain products and services from December 14, 2024 to February 15, 2025. In April, the new Prime Minister Mark Carney signed a decree eliminating carbon tax, which had effects on the price of petrol to the pump.
As Mr. Macklem himself underlined: “This effect of the tax will remain present in the variation over one year of the consumer price index for the next 11 months, before dissipating. »»
If taxes are disregarded, inflation increased from 2.1 % in March to 2.3 % in April, said the governor of the Bank of Canada. This is a slightly stronger than expected increase, he recognized. This could also illustrate “a certain unusual volatility of inflation”.
Mr. Macklem also mentioned that the Bank of Canada “would keep his eyes riveted on the measures of underlying inflation to measure the evolution of inflationary pressures”.
