Canada's inflation hit 2.6% as tax breaks ended, while US tariffs add uncertainty to economic growth
Canada’s inflation rate increased in February, raising concerns about rising prices and a potential technical recession, according to BNN Bloomberg.
Statistics Canada reported on Tuesday that the annual inflation rate climbed to 2.6 percent from 1.9 percent in January.
The increase coincided with the end of temporary federal tax breaks, which had removed GST and HST from select items.
James Orlando, director of economics at TD Economics, told BNN Bloomberg that the rise in inflation was expected due to the expiration of the GST/HST holiday.
He noted that after a period of relatively stable inflation, prices now appear to be rising independently of ongoing tariff developments.
“The issue for us is how much is this going to continue? Not just into March, but into April and May? We have a situation where it’s not just the tax impact, the tax holiday that’s pushing up inflation right now,” Orlando said.
He added that inflation, excluding indirect taxes, could exceed 3 percent by next month.
Canada is also contending with an escalating trade dispute, as US President Donald Trump has announced plans to impose both broad reciprocal tariffs and sector-specific tariffs on April 2.
In its quarterly economic forecast, TD Economics stated that Canada has “borne the brunt” of Trump’s tariff strategy despite having “one of the most equal trade relationships.”
The forecast anticipates that tariffs will remain in place for six months before negotiations lead to a gradual reduction.
However, it suggests that Canada’s trade and tariff policies may not return to pre-Trump conditions.
While Canadian consumers have expressed increased support for domestic products, the forecast indicates that this shift will not be enough to offset the negative effects of US tariffs.
TD Economics predicts Canada will “tip into a shallow recession this year, mitigated in part by government support.”
Orlando pointed out that Canada’s economy had been strengthening prior to the tariff uncertainty.
“You look at the Canadian consumer, Canadian businesses, you look at inflation, they were all starting to come back in a way such that the Bank of Canada was likely going to have to pause rate cuts,” he said.
However, given the uncertainty surrounding tariffs, Orlando described the situation as a “scenario-based world we live in,” where the scope and duration of tariffs remain unpredictable.
He suggested that if tariffs persist for six months with an unstable application, a technical recession could occur.
“What we calculate is we are going to hit what is a technical recession in Canada, so two straight quarters of negative growth. Now these aren’t big negative numbers, but they are negative. So, I think this reflects Canadian consumers and businesses with their confidence being hit based on these tariffs,” he said.
