Canada’s inflation beast roared back in February, jumping to 2.6% and blindsiding economists who’d banked on a gentler 2.2% rise. Statistics Canada pinned the spike on the mid-month end of a federal GST/HST tax holiday, with restaurant bills, booze, and kids’ gear driving the charge. Now, with U.S. tariff threats looming, the Bank of Canada’s April 16 rate call is teetering on a knife-edge—cut again, or hit pause?
The tax break’s fade-out was no small fry: without it, February’s rate would’ve hit a scorching 3%. “We saw it coming, but 2.6%? That’s a wake-up call,” said RSM Canada economist Tu Nguyen. Gas prices softened the blow, dipping year-over-year, but travel tours—up 18.8% thanks to a U.S. long-weekend jaunt—kept the heat on. Looking ahead, scrapping the carbon price April 1 might cool things off, but Nguyen warns Trump’s tariff hammer, set to drop April 2, could swamp that relief with pricier groceries, appliances, and more.
Last week, the Bank of Canada trimmed its key rate to 2.75%, its seventh straight cut. Governor Tiff Macklem admitted tariffs are a wild card no rate tweak can fully tame—he’s laser-focused on inflation’s next move. Trouble is, February’s “hotter-than-expected” core inflation metrics, per TD Bank’s Leslie Preston, hint at stickier price pressures ahead. TD’s betting on two more quarter-point cuts, but BMO’s Benjamin Reitzes isn’t so sure. “This noise could lock in a cautious vibe,” he wrote. “If the economy holds up, April might be a breather.”
Markets agree—post-data, they’re pegging a 62% shot the Bank holds steady, per LSEG Data & Analytics. Nguyen says the tariff mess could spook the Bank into pausing, especially if inflation’s leash starts slipping. “They’ve clawed it back to 2%—no one wants a rerun of the wild days,” she noted. With trade tensions brewing and data piling up, April’s decision is anyone’s guess. One thing’s clear: the Bank’s juggling act just got trickier.