Economic Indicators Suggest Potential Rate Cut Amid Modest Inflation Impact from Tariffs

Randall Bartlett, the deputy chief economist at Desjardins, thinks more-stellar-than-expected economic data would point to a quarter-point interest rate cut. That’s why he is expecting the Bank of Canada to announce such a decision on September 17. Fingers crossed, but inflation metrics are beginning to stabilize. Economists are forecasting Canada’s consumer price index to have…

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Economic Indicators Suggest Potential Rate Cut Amid Modest Inflation Impact from Tariffs

Randall Bartlett, the deputy chief economist at Desjardins, thinks more-stellar-than-expected economic data would point to a quarter-point interest rate cut. That’s why he is expecting the Bank of Canada to announce such a decision on September 17. Fingers crossed, but inflation metrics are beginning to stabilize. Economists are forecasting Canada’s consumer price index to have dropped to 1.6 per cent in July.

Indeed, according to Bank of Canada officials, tariffs have increased consumer prices by an estimated $1 billion. Overall, their take is that the impact has been “modest to date.” Relaxing price pressures are largely due to lower energy costs. Consequently, experts are predicting inflation will remain around 2.5 percent – 3 percent for the remainder of the year.

Bartlett’s primary point is about what inflation is doing lately—inflation is cooling down. This does not eliminate the fundamental upward impetus to price growth in Canada. He highlighted that the removal of the consumer carbon price earlier this year is still washing through headline inflation numbers. This is making them look worse than they are.

And while we are still awaiting a complete July, the early evidence suggests it will be somewhat weaker than June. We’ve gone off of what we see in today’s trends. So from a headline perspective at least, that on the whole is pretty good news for Canadians, Bartlett stated.

Canada continues to deal with real and potential fallout from its tariff fight with the United States. While some encouraging signs are emerging in our economy, this conflict is increasing costs across a broad range of products. In fact, the governing council of the Bank of Canada is still unwilling to accept that tariffs could have long-lasting effects on inflation.

The consumer price index (CPI) data available for the United States contains ample evidence of the tangible effect of tariffs. Perhaps most obvious is this dynamic in the skyrocketing costs of footwear and furniture. According to the latest Bloomberg and Reuters polls of economists, annual inflation probably eased to about 1.7 percent in July. This prediction would be right on the nose with Bartlett’s predictions.

Based on historical evidence, Bartlett thinks that the vast majority of new tariff-related price increases were passed through to consumers over the months of April and May. “Any company deciding to do this July or thereafter should know they’ll be under the spotlight,” Byer said.

Members broadly agreed that it remains too early to assess the effects of tariffs and trade rewiring on Canada’s economic activity and inflation. Perhaps the most surprising insight, though, came as we drew up the summary of these lawmakers’ deliberations.

These are developments that economists are watching very closely. They’re a bit more concerned about how these changes will impact the Bank of Canada’s monetary policy decisions in the near term. The expectation of a rate cut hinges significantly on whether inflation continues to moderate and whether tariffs exert less pressure on consumer prices than initially anticipated.

“If we see that there’s less passthrough from tariffs into inflation than we’re expecting … we think there’s an opportunity for the Bank of Canada to cut further,” – unnamed source

It’s no secret that Canada is going through some particularly painful economic times. Both analysts and citizen activists alike will be watching very closely to see what the Bank of Canada does on September 17. The relationship between tariffs, inflation, and consumer prices will continue to be central in shaping the country’s economic future.

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