Bank of Canada Governor Tiff Macklem provided updates on the bank’s approach to inflation and tariffs during a recent meeting in Calgary. He indicated that February’s inflation figures were anticipated but noted that they demand attention, with expectations for March CPI to remain around 2.5%.
Macklem mentioned that shelter inflation is likely to decrease gradually and observed that current consumer prices are not yet influenced by tariffs. He acknowledged the potential risks of extended tariffs, including the possibility of a recession. The Governor emphasised the bank’s ability to manage inflation using its tools and stated that future clarity would influence policy decisions.
Inflation Figures And Market Stability
Macklem’s remarks highlight that inflation figures for February aligned with forecasts, yet they cannot be ignored. The expectation for March’s Consumer Price Index to hold near 2.5% suggests stability, but it does not eliminate the need for caution. Shelter inflation, which remains a persistent issue, is projected to ease, though this will likely take time. His observation that tariffs have not yet filtered into consumer prices indicates a delay in their full impact, but this does not mean they can be dismissed.
What stands out is his acknowledgement that prolonged tariffs could do more than push prices higher—they carry the possibility of triggering a recession. While we have seen inflationary pressures persist, Macklem’s confidence in the central bank’s ability to intervene provides some reassurance. Still, his statement that further clarity will drive future decisions leaves room for adjustments depending on how conditions unfold.
Deputy Governor Toni Gravelle, speaking separately, reinforced the bank’s data-driven approach. He reiterated that if inflation remains near the upper bounds of expectations, policy adjustments could follow. In particular, he noted that core inflation trends remain essential to the decision-making process, meaning market participants should be attentive to upcoming figures. He also recognised the global economic picture, pointing out that external shocks could affect domestic conditions.
Gravelle’s position lines up with Macklem’s perspective but adds depth to the broader considerations. When central banks weigh inflationary data, they do not make decisions in isolation. Instead, they assess global shifts, fiscal policies, and labour market trends. That is why traders must stay ahead of core economic reports and be prepared for shifts in expectations.
Market Reactions And Policy Expectations
In the coming weeks, inflation data will dictate sentiment in derivatives markets. If CPI remains steady, there may be fewer abrupt changes in rate expectations. However, should inflation take a different trajectory—either moving higher or falling faster than anticipated—volatility will increase. Those in the market should be watching for indications of shifting policy language, particularly if the central bank points toward unexpected adjustments.
There is also the question of how tariffs may begin influencing prices. While Macklem noted these effects have yet to appear, this will not remain the case indefinitely. If costs start creeping into consumer goods, market expectations may shift in response. Any indication that tariffs will last longer than initially expected could weigh on broader economic outlooks.
Taken together, Macklem and Gravelle’s comments underline the importance of data in shaping monetary policy. Their detailed responses suggest there is no urgency for immediate change, but they leave no doubt that incoming information could alter that stance. Anyone participating in rate-sensitive markets should remain closely attuned to inflation figures and central bank communications—they will determine near-term expectations and potential shifts in policy.
