In remarks in St. John’s, Bank of Canada Governor Tiff Macklem assessed how US tariffs and related uncertainty are already disrupting Canadian trade and employment and could raise consumer prices even as weaker growth weighs on inflation. He welcomed the announcement that Canada and the United States agreed to negotiate a new economic and security relationship within 30 days and said the Bank is proceeding carefully with monetary policy. The speech pointed to a tariff-driven swing in trade flows, with goods exports rising 10% in the first quarter of 2025 versus the fourth quarter of 2024 as firms pulled shipments forward, helping lift gross domestic product growth to 2.2%, followed by a drop of more than 15% in goods exports to the United States in April. April exports of steel and aluminum products fell 11% and 25%, respectively, and motor vehicle exports were down almost 25%, while exports to countries other than the United States have picked up as firms seek new markets. On jobs, Macklem said around two million Canadian jobs rely on goods exports to the United States, manufacturing employment is down 55,000 since January, and employment has fallen in trade-sensitive sectors, with business surveys also showing weaker hiring intentions that began with exporters and have spread more broadly. On inflation, he described offsetting forces from tariffs, with weaker exports and job losses dampening demand while higher import costs from US tariffs and Canadian counter-tariffs put upward pressure on prices, and noted that past experience suggests pass-through of about 75% of tariff costs over roughly a year and a half if tariffs persist. Headline inflation was 1.7% in April after the elimination of the consumer carbon tax reduced inflation by 0.6 percentage points, while inflation excluding taxes was 2.3% and the Bank’s preferred measures of core inflation moved up. Governing Council held the policy rate at 2.75% on 4 June, citing high uncertainty, a softer but not sharply weaker economy and firmer inflation data, and indicated further cuts could be needed if tariff effects broaden and cost pressures on inflation remain contained.
Bank of Canada 2025-06-18
Bank of Canada links US tariffs to a sharp export reversal and job losses while keeping rate-cut option open
Bank of Canada Governor Tiff Macklem highlighted the disruptive impact of US tariffs on Canadian trade, employment, and inflation, noting a significant drop in goods exports to the US and a decline in manufacturing jobs. He welcomed upcoming negotiations for a new economic and security relationship with the US and emphasized cautious monetary policy amid high uncertainty and mixed inflation signals. The Governing Council maintained the policy rate at 2.75%, with potential for cuts if tariff effects persist.