Bank of Canada governing council is concerned inflation could persist for longer

The Bank of Canada is seen in Ottawa on April 16, 2025. (Justin Tang / The Canadian Press)

OTTAWA - Members of the Bank of Canada governing council were concerned that underlying inflationary pressures led by trade disruption and uncertainty could persist for a long time, minutes of the meeting showed on Tuesday.

The central bank held its key benchmark rate at 2.75 per cent on June 4, citing the need to monitor the impact of U.S. tariffs on Canada and on rest of the world and how businesses and consumers adapted to it.

Its summary of deliberations showed the members took into consideration the unexpected firmness in inflation data to take its rates decision and that the team spent considerable amount of time probing how trade policy was influencing prices.

“Underlying inflationary pressures could persist for an extended period as consumers and businesses adapt to the rewiring of global trade,” the minutes said, even as the members acknowledged there could be downward pressure on prices too.

Businesses have been reporting that they would pass on higher costs stemming from trade disruptions, the members noted, adding that surveys showed that even consumers see prices rising.

Canada’s annual inflation rate fell to 1.7 per cent in April due to some tax removal, but closely tracked core measures of inflation rose above the bank’s target range of one per cent to three per cent in the same month, stoking concerns that inflation was firming up.

The governing council excluding impact of taxes, inflation was 2.3 per cent, which was slightly above expectations.

The fall in the rate of inflation to below two per cent had helped the BoC to cut interest rates aggressively by 225 basis points since June last year, but the uncertainty and subsequent tariffs imposed by President Donald Trump has disrupted the bank’s predictions.

“Members agreed that cost increases from trade disruptions may be playing a role in inflation in goods prices, but the direct impact from retaliatory tariffs was not yet evident,” the summary said.

The rate-setting team acknowledged that the pass-through of higher input costs to consumer prices would be difficult to track going forward.

The governing council will closely track how inflationary pressures are evolving and carefully assess the timing and strength of the downward pressure on inflation from a weaker economy and the upward pressure on inflation from higher costs, the members agreed.

The deliberations said if the recent firmness in underlying inflation were to persist, it would be more difficult to cut the

policy rate. However, if the economy weakens and cost pressures

are contained, there could be a need to cut rates in the future.

(Reporting by Promit Mukherjee, editing by Dale Smith)

Promit Mukherjee, Reuters