Varcoe: Weak growth, rising prices make job 'a lot hard harder,' as central bank governors meet in Banff

Calgary Herald

21-05-2025

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In Canada, data released this week indicated the year-over-year inflation rate increased by 1.7 per cent in April, down from a 2.3 per cent hike in March.
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The drop was powered by lower pump prices, which tumbled 18 per cent from a year earlier as the federal government ended the national carbon tax and oil prices dipped.
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Without the effect of energy and the carbon tax, the inflation rate increased by 2.9 per cent, up from 2.5 per cent in March — and consumers continued to feel the pinch at the grocery store.
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'On the surface, it looks OK, but when you dig and look under the hood, there'd be reason to be concerned,' said Alberta Central chief economist Charles St-Arnaud, noting core inflation was above three per cent.
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'It puts the Bank of Canada in a very hard situation, because we've seen the labour market be on the weaker side . . . Normally, the bank could cut to provide support, but with inflation being at the top end of the inflation target — and maybe above — it starts to be harder for them to justify cutting.'
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Over the past year, the Bank of Canada has reduced its key policy rate from five per cent down to 2.75 per cent, although it has left it unchanged since the last adjustment in March.
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With the economy slowing and unemployment rising, it sparks questions about the best approach to deal with rising prices.
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During a speech in Calgary in March, Macklem was asked about the risk of stagflation facing the Canadian economy.
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'The reality is new tariffs, combined with retaliatory tariffs, mean a weaker economy and higher inflation,' he told the audience.
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'A weaker economy is going to put downward pressure on inflation. New costs, new tariffs, a weaker exchange rate, supply chain disruptions, those are all going to put upward pressure on inflation. So we're looking at both of those pressures.'
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South of the border, the U.S. gross domestic product contracted during the first quarter, and the Federal Reserve decided earlier this month it would not reduce interest rates. In April, the U.S. inflation rate was 2.3 per cent compared with a year earlier.
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Analysts believe a trade deal reached between the U.S. and the United Kingdom this month could help ease the uncertainty on the trade front compared with early April, after the White House unveiled its reciprocal tariffs, which were later paused for 90 days.
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But at his company's investor day meeting this week, JPMorgan Chase & Co. CEO Jamie Dimon spoke about trade concerns still creating risks.
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'I think the chance of inflation going up and stagflation is a little bit higher than other people think,' he said.
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Poloz, who was Bank of Canada governor from 2013 until 2020, noted the U.S. baseline tariff rate of 10 per cent that the United Kingdom agreed to is still relatively high.
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And he equated the uncertainty and effect of tariffs on the economy to 'throwing sand into the gears of a beautiful Ferrari. It just doesn't work as well as before.'