Here's a deeper look at economic factors playing into this (tariffy-ing) rate cycle.
Canada's inflation pace shows cooling.
Headline inflation in March dipped to 2.3% (from February's 2.7%), with the GST holiday concluding on Feb. 15. Core inflation also declined slightly to 2.85%.
These numbers, while an improvement over last month, are still above the BoC's 2.0% target. Some comfort can be taken, however, that the pace of gas, travel and shelter led the decline. Groceries didn't slow, which most Canadians won't be surprised at after a trip to the store.
Canadians are already pulling back their spending dollars amid financial uncertainty due to the trade war, which is helping to lower some prices. Also, the rising Canadian dollar and lower oil prices are helping to push back against potential tariff-related price increases.
Cold Canadian March labour market print.
The March unemployment rate rose to 6.7% from 6.6% last month, 33K jobs were lost, and wage inflation dropped to 3.6% (from 3.8% last month). All told, this report adds fuel to suggestions of a coming recession.
Clearly, Canadian businesses took Trump's tariff threats seriously as to how they might affect their bottom lines, hiring projections (or in this case, firing projections), and future investment sentiments.
Warming economic growth is running into a cold front (the tariff storm).
Canadian GDP in 2024 grew by more than expected, with a revised annualized pace of 2.6% (real GDP Q4 growth was 0.6%, quarter-over-quarter). Annualized means quarterly growth compounded by a formula to assume the same pace for 4 quarters, offering a 'yearly' growth rate for comparison. Real GDP annual growth for 2024 is thought to be about 1.5% (year-over-year), higher than the BoC projection of 1.3%.
And January 2025 looks to have continued that economic warming, with a reported growth pace of 0.4%, the strongest monthly showing since April 2024.
But don't break out the barbeque yet — February numbers may run smack into a cold front instigated by Trump's tariffs and resulting economic stability.
Trade turmoil is impacting Canadian housing markets.
National housing activity fell in February 2025, with both sales and listings falling by double digits; home prices remained relatively stable.
Will lowering interest rates (and new mortgage rules that favour 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, including the impact of the two rate agendas on the Canadian dollar.
With a Trump presidency, here are some current concerns:
- U.S. economic growth may quickly accelerate and cause supply and demand shocks to increase U.S. (and Canadian) inflation once again
- 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 Canadian dollar has danced at 20-year lows against U.S. currency (partly due to trade tensions and political and economic instability) — though it is rising recently as trade turmoil lowers the U.S. dollar
- Interest rate divergence between the two central banks is now at 2.0%, pressuring input prices
As you can see, it's not just U.S. tariffs that can affect our economy and the BoC's rate decisions.