BMO believes the Bank is “firmly on hold” and said any rate increase would now have to be considered “very, very carefully.” If Canada-U.S. trade relations worsen, however, senior economist Robert Kavcic said the resulting economic risks could “open the door to easing again.”

The assessment follows the U.S. announcement of a 50% tariff on a targeted range of Canadian goods beginning Aug. 19.

The measures would affect roughly $28 billion (US$20 billion) worth of Canadian exports to the U.S., including alcoholic beverages, cement, dairy products, wood and paper products, chemicals, plastics, electronics and some industrial equipment.

Energy, potash, critical minerals, fish and goods already subject to tariffs under Section 232 will be exempt, according to BMO.

The duties are being imposed under Section 338 of the U.S. Tariff Act of 1930, which allows the president to levy tariffs of up to 50% against countries deemed to discriminate against American commerce.

The White House said the move responds to Canadian measures affecting U.S. automobiles, dairy products and alcohol, including provincial restrictions on American liquor sales and Canada’s dairy supply-management system.

Prime Minister Mark Carney said the tariffs violate the Canada-U.S.-Mexico Agreement and would raise costs for American consumers, while indicating that Canada remains prepared to negotiate a resolution, Reuters reported.

While the 30-day delay leaves time for negotiations, the decision marks a significant escalation because the duties would apply even to CUSMA-compliant goods, which have so far remained tariff-free unless covered by separate sector-specific measures.

CIBC analysts described the announcement as the “starting point” for potentially difficult negotiations over the continental trade agreement, according to Bloomberg.

“We believe the selection of goods is largely political,” analysts led by Christopher Harvey, CIBC’s head of equity and portfolio strategy, said in a note.

Tariffs could weigh on Canadian growth
The affected products represent about 5% of Canadian goods exports to the U.S. and roughly 0.8% of Canadian GDP, according to BMO.

TD Economics estimates that the tariffs could subtract between 0.3 and 0.6 percentage points from Canadian GDP growth over the next year if they remain in place, although it expects the impact to be closer to the lower end of that range.

TD economist Andrew Hencic said the targeted products appear to have been selected partly because U.S. demand is likely to respond quickly to the higher duties. He pointed to Canadian iron and steel exports, which are down roughly 50% from pre-tariff levels as U.S. demand has declined.

Businesses are also likely to accelerate shipments ahead of the Aug. 19 deadline, adding volatility to upcoming trade data. TD said the data would likely not reflect the full effect of the tariffs until September, with the broader economic impact beginning to emerge late this year.

Financial markets initially showed little reaction. TD said the Canadian dollar was down about 0.2%, while expectations for the Bank of Canada’s rate path were largely unchanged.

The latest tariff announcement follows a cooler Canadian inflation report and the Bank of Canada’s decision last week to leave its policy rate unchanged at 2.25% for a sixth consecutive meeting.

Written by

Steve Huebl
Economic news
July 21, 2026

Canada’s inflation rate slowed by more than expected last month as gasoline prices eased and a key measure of core inflation dropped below 2% for the first time in nearly six years.

(Bloomberg) — Canada’s inflation rate slowed by more than expected last month as gasoline prices eased and a key measure of core inflation dropped below 2% for the first time in nearly six years.

The consumer price index rose by 2.8% in June, Statistics Canada reported on Monday. That’s down from 3.2% in May — which was the highest level in more than two years — and lower than the 2.9% rate expected in a Bloomberg survey of economists.

The average of the Bank of Canada’s preferred median and trim measures of core inflation was 1.85%, marking the lowest rate since September 2020 and the first time the metric has fallen below 2% in nearly six years.

The softer-than-expected inflation report adds more evidence that inflationary effects of the Iran war aren’t yet spreading beyond energy. The Bank of Canada has warned it may have to raise interest rates if higher energy costs feed into other prices, but cooler core inflation suggests economic slack is offsetting price pressures from the war.

“This report confirms the recent view from the bank that higher energy costs are not leading to broad inflationary pressures,” said Charles St-Arnaud, chief economist at Servus Credit Union.

“However, with gasoline prices remaining elevated and oil prices increasing in recent weeks — leading to continued elevated freight costs — it is probably still too early for the bank to lower its guard.”

The loonie fell to the day’s low versus the U.S. dollar after the release of the report, down 0.2% to C$1.4046 as of 9:00 a.m. in Ottawa. Short-term Canadian debt rallied, with the two-year yield down about four basis points to 2.83%.

“The wait-and-see approach for the Bank of Canada appears to be the right choice and suggests the same for the Fed and Bank of England,” said Win Thin, chief economist at Bank of Nassau 1982.

Gasoline prices were still up 20.5% in June from a year ago, but that’s down from a 33.2% increase in May.

On a monthly basis, gasoline prices fell by 10.2% as diplomatic efforts to end the war between the US and Iran started to bring down global oil prices. The two sides had reached a ceasefire in mid-June, but that’s since collapsed, adding to uncertainty about energy prices.

The monthly decline in gasoline prices was the largest since April 2025, when the consumer carbon levy was scrapped.

The consumer price index also fell by 0.4% month-over-month, marking the largest decrease since December 2024.

Grocery prices last month increased annually by 3.9%, down from 4.3% in May. The slowdown is attributed to slower price growth for fruit due to lower prices for grapes. Shelter price inflation declined to 1.5% in June, and has remained below 2% since February.

Meanwhile, traveller accommodation increased by 10.1% on a yearly basis, up from 2.5% in May, as the FIFA World Cup kicked off. Travel tours were also up 6.8% annually in June, rising sharply from 0.7% in May.

The Bank of Canada held its policy rate at 2.25% for a sixth consecutive meeting last week, with its projections suggesting the economy will rebound and inflation pressures will fade. But it also warned that uncertainty remains high, and said policymakers are “prepared to adjust monetary policy as needed.”

The central bank’s monetary policy report projects inflation will average 2.5% in 2026, and will return to its 2% target by early next year.

“It’s clear that the output gap is weighing heavily on underlying inflation,” Benjamin Reitzes, a rate strategist with the Bank of Montreal wrote in a report to investors. “This will keep the bank comfortably on the sidelines.”

Written by

Bloomberg
Economic news
July 20, 2026

–With assistance from Mario Baker Ramirez.

©2026 Bloomberg L.P.

The Bank of Canada held interest rates steady for a sixth consecutive meeting as policymakers see the economy rebounding and oil price-driven inflation fading.

(Bloomberg) — The Bank of Canada held interest rates steady for a sixth consecutive meeting as policymakers see the economy rebounding and oil price-driven inflation fading.

Officials led by Governor Tiff Macklem kept the policy rate at 2.25% on Wednesday, matching expectations of economists in a Bloomberg survey and traders in overnight swap markets.

“After a year of weakness, Canada’s economy is showing signs of improvement,” the bank said in its monetary policy report. “Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high.”

The bank said in its rate statement that current borrowing cost levels remain appropriate to sustain the economic recovery and bring inflation back to the 2% target. “Governing Council will continue to assess the strength of the Canadian economy and the outlook for inflation, and is prepared to adjust monetary policy as needed,” it said.

In the past two rate decisions, Macklem had warned that “consecutive” rate hikes might be needed if the Middle East conflict continues and higher energy prices feed into broader inflation. He dropped this language in Wednesday’s opening remarks, along with a warning that there may be a need to cut if the U.S. imposes major new trade restrictions.

The loonie traded steadily against the U.S. dollar after the decision, little changed on the day around the C$1.4057 mark as of 10:23 a.m. in Ottawa. Canadian bonds extended small gains across the curve, with the two-year yield down about four basis points to 2.83%. Swaps traders continue to price some 20 basis points of tightening from the bank by December.

In the monetary policy report, the bank said it sees growth rising by 2.5% annualized in the second quarter and 1.5% in the third. And while weakness at the start of the year prompted officials to slash their 2026 growth forecast to 0.7%, policymakers boosted their forecasts for 2027 and 2028 to 1.8% each.

Headline inflation is seen averaging 2.5% in 2026, from 2.3% previously, and is forecast to return to the bank’s 2% target by early next year. Policymakers listed “higher oil prices, elevated gasoline refinery margins and a weaker Canadian dollar” as reasons for near-term strength in price pressures.

The bank’s forecasts show core inflation remaining subdued too, and officials pointed to a narrowing breadth of underlying price pressures as evidence that higher oil costs aren’t spilling over into the prices of other goods and services.

Inflation risks
The bank said a main upside risk to inflation is potential price pressures from businesses passing on higher input costs to consumers.

It also raised concerns about the possibility that its estimates of productivity could be “weaker than assumed,” which would imply a smaller output gap and more inflationary pressure.

The bank listed a potential tightening of global financial conditions and weaker-than-expected recovery in domestic economic growth as downside risks to the inflation outlook.

They assume Brent to fall to $70 a barrel by the end of 2027, based on the July 9 futures curve and slightly lower than their April forecast. Policymakers also boosted their outlook for exports, in part due to higher “energy-related activity.”

The bank didn’t provide its interest rate decision on an embargoed basis to media outlets because of a planned protest in support of striking security guards.

–With assistance from Mario Baker Ramirez and Nojoud Al Mallees.

©2026 Bloomberg L.P. / Mortgage proffessionals Canada