BoC Meeting Minutes show Canadian policymakers are awaiting signs of tariff inflation

The Bank of Canada released its latest Meeting Minutes on Wednesday. According to the BoC's internal discussions, impending trade tariffs from the United States (US) have become a key risk to policy guidance looking forward. Despite the looming threat of a potential reignition in inflation on the back of tit-for-tat tariffs between the US and Canada, the destabilizing impact of a trade war between the two countries warranted a pre-emptive rate cut in order to shore up economic activity before impacts from tariffs get baked into the data.

Key highlights

While retaliatory tariffs would likely represent one-time increase in the level of prices, the governing council saw the risk of higher import prices feeding into other prices.

BoC governing council felt that retaliatory measures by Canada and other nations would put upward pressure on inflation.

The BoC governing council felt the increased uncertainty due to the US tariffs threat also supported the case for a cut.

Even if no tariffs were imposed, the governing council felt a long period of uncertainty would almost certainly damage business investment.

BoC governing council agreed that in this case, Canadian GDP growth would be reduced until the economy adjusted to tariffs.

The governing council agreed a protracted trade conflict with the US would permanently cut the level of Canadian GDP.

The governing council agreed that in setting monetary policy, it would need to continuously gauge the effects of a trade conflict in real-time.

BoC Governing Council agreed it would need to assess a wide range of data, including info on supply chains and more frequent and detailed business and household surveys.

The governing council felt that if this led to an increase in inflation expectations, it could generate higher ongoing inflation.