Inflation jumps to 2.6% as tax breaks end; while looming us tariffs add pressure to Canada's economy
Statistics Canada reported that Canada's annual inflation rate increased to 2.6 percent in February, up from 1.9 percent in the previous month.
According to BNN Bloomberg, the rise coincided with the end of the federal government's temporary tax breaks, which had removed GST and HST from certain items.
James Orlando, director of economics at TD Economics, told BNN Bloomberg that the increase was widely expected due to the expiration of the GST/HST holiday.
He noted that while inflation had remained relatively stable, prices now appear to be rising beyond the impact of tariffs.
“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 when excluding indirect taxes, inflation could surpass three percent by next month.
Meanwhile, Canada faces additional economic challenges with the United States' upcoming tariff measures. US President Donald Trump announced plans to implement broad reciprocal tariffs and sector-specific tariffs starting April 2.
According to TD Economics’ quarterly economic forecast, released Tuesday, Canada has “born 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 states that Canada’s trade relationship with the US is unlikely to return to its pre-Trump state.
Although Canadian consumers have expressed a growing interest in buying domestic products, TD Economics expects this shift will not fully counterbalance the negative effects of US tariffs.
As a result, the forecast predicts Canada will “tip into a shallow recession this year, mitigated in part by government support.”
Orlando stated that without tariffs, Canada’s economy had been regaining momentum.
“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, the uncertainty surrounding tariffs leaves Canada in what Orlando described as a “scenario-based world.”
If tariffs persist in a fluctuating manner for six months, he said a technical recession could occur.
He said they expect Canada to enter a technical recession, with “two straight quarters of negative growth.”
While the declines are not significant, he noted that they reflect weakened confidence among Canadian consumers and businesses due to tariffs.
