On Canada-U.S. trade war:
“Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade.”
No normal forecast:
“U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy.”
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today’s Monetary Policy Report includes three scenarios. A “current view,” and two more looking at an escalation or de-escalation.
Optimism on inflation:
“There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply.”
“At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent.”
A clear consensus to hold, for now:
“There was clear consensus to hold our policy rate unchanged.”
“If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate.”
