How are economic factors playing into this rate cycle?
Canada's inflation numbers are as conflicted as our trade relationship with the U.S.
Canada's headline inflation in April dipped to 1.7% (from 2.3% in March), with the end of the consumer carbon tax and lower oil prices contributing to the decline.
Sounds great, but wait. The average core inflation (median and trim) rose to 3.15%. And stripping out energy means headline inflation was actually 2.9%.
Core inflation can be predictive of future inflation pacing, which the Bank of Canada tends to favour in informing its interest rate path. So, the core rise suggests that prices are showing tariff consequences more quickly than predicted — the BoC had forecast inflation persistence to show up in the latter half of 2025.
Two more CPI readings before the July 30 BoC rate date will help illuminate how inflation is reacting to tariffs and global volatility.
Canadian May labour market numbers are a mixed review.
Canada's May unemployment rate rose to 7.0%, a 9-year high (excluding the 2020/21 pandemic years), despite the creation of 8.8K jobs.
Private sector jobs showed more promising gains. However, hiring intentions have slowed across the board, and it is taking longer for people to secure full-time work. Youth and summer students (the demographic aged 15-24 years) are experiencing a 20.1% unemployment rate, not seen since May 2009.
The May numbers show underlying weakness, but the Bank of Canada may view the job creation as an unexpectedly positive sign amid tariff turmoil.
Economic growth benefits from pre-tariff activity.
In 2024, Canadian GDP grew by more than expected, with a revised annualized pace of 2.6% (real GDP Q4 growth was 0.4%, quarter-over-quarter).
But in 2025, tariff trouble is disrupting a post-pandemic recovery — just how much still remains to be seen.
So far this year, growth has sailed into stronger headwinds, although Q1 2025 saw an unexpected GDP gain of 0.4%, matching the increase in Q4 2024. March GDP gained by 0.1% following a contraction of 0.2% in February, and April may eek out a 0.1% increase. However, these 'gains' are being put down to increased pre-tariff activity, as orders and shipping were motivated by impending (or the threat of impending) U.S. tariffs.
Domestic growth remained flat for the quarter — a sign that Canadians were pulling back on spending.
Trade turmoil is impacting Canadian housing markets.
National housing sales fell again in March 2025, and listings increased slightly; home prices remained relatively stable.
Will lowering interest rates (and new mortgage rules favouring younger buyers) encourage some buyers out this spring despite the trade-induced economic turmoil? Perhaps not, if financial concerns override the spring feeling of looking for a new home — or if home prices rise from a lack of inventory.
U.S. economy and rate-cut pace.
Like it or not, our countries' economies are closely linked.
With a Trump presidency, here are some current concerns:
- U.S. trade policies are causing supply and demand shocks that may increase inflation in both countries
- U.S. tariffs of 25% (or more) on Canadian imports (and Canada's expected retaliations) could devastate our economy (Canada does about 75% of its export business with the U.S.) and eventually un-complicate the BoC's rate cut decisions with an outsized need to spur the economy
- Immigration issues between the two countries may further diminish our labour productivity
- The U.S. dollar is decreasing due to its trade stance, pushing up the Canadian dollar (disinflationary), but also indicates a worrying destabilization of world markets
- Interest rate divergence between the two central banks is now at 2.0%, pressuring input prices
- Proposed U.S. taxes (section 899 of the One Big Beautiful Bill Act) on Canadian investments and companies could have a significant impact on our economy