Bank economics argue rate hikes still look distant despite stubborn inflation headlines
The Bank of Canada’s fixation on “cost‑push” inflation risk has looked misplaced, a new analysis from CIBC World Markets has argued, with scant evidence that either import prices or domestic production costs are about to reignite price pressures.
In its report, CIBC’s economics team said the central bank has “cautiously” eased policy this year because it worries that tariffs and supply‑chain shifts would fan inflation.
The Bank has “cited the fallout from rejigging global supply chains in the wake of US tariffs, higher prices [for] goods imported from the US that incur tariffs on inputs, and earlier in the year, a hit from Canada’s own retaliatory tariffs,” the report said.
Cost pressures fail to match central bank worries
Those forces are expected to squeeze households through “pricier imports and/or rising costs for domestic production,” the authors said.
Yet CIBC’s read of recent data points the other way. “All told, we don’t see persuasive evidence that either import prices or domestic production costs are destined to accelerate or that cost increases have yet to filter through,” the report said.
On imports, CIBC said the share of finished consumer goods coming from the US is relatively modest, outside of autos and some food products, limiting the impact of US tariffs on Canadian inflation.
While the Bank feared foreign producers would lift prices to offset US tariff pain, “from our vantage point, and what we’re seeing thus far, the reverse seems more likely,” the report said.
“If, for example, a Korean carmaker can only pass on half of the 15% US tariff to its American customers, and therefore absorbed a 7.5% net price cut, it would still net a better year‑on‑year price change in Canada if it cut its price to this market by, say, 5%,” the economists said.
Producer prices and wages offered limited inflation heat
On the domestic side, the recent climb in industrial product prices has been “heavily tilted towards price hikes in two categories: food (particularly meat) and primary non‑ferrous metals,” the report said, with little sign of a broader pass‑through.
CIBC added that wage pressures appeared to have eased. “The trend appears to be towards more moderate pay hikes,” the report said, noting that year‑over‑year unit labour costs were estimated at 1.1% so far this year, down from 2.6% in 2024.
“On the demand side, Canada still has economic and labour market slack,” the report said, pointing to softer rental demand and indications that businesses expect margin compression rather than aggressive price hikes.
“If they’re right about their own markets, policymakers will have less to fear from cost‑push inflation than they think,” it said. “Bank of Canada rate hikes should still be a long way off.”
If cost‑push fears continue to fade and labour‑market slack persists, the CIBC view suggests that any future move in policy would more likely be a further trim in 2026 than a near‑term hike – a backdrop that could give rate‑sensitive borrowers a little more breathing room, but keeps the onus on prudent underwriting and stress‑testing in the months ahead.
