Wednesday 9 September 2026

We expect the counter-tariffs to show up in Canadian CPI ex-gasolineCPI ex-gasoline The Consumer Price Index with gasoline removed. When it sits well below the headline rate, the inflation is coming from fuel rather than from the broad economy. within two to three months, and we think this round makes the Bank of Canada more patient about cuts, not more eager, into the late-October decision and beyond.

Why we think so. A tariff is a tax paid at home. The Canadian importer pays the duty at the border and then passes as much of it as possible to customers. The list that took effect at midnight on Monday 8 September is broad and close to the shelf: duties of 15%, 25% and 50% on $27.6 billion of U.S. goods, from dairy, honey and lumber to clothing, cosmetics, kitchenware, glass containers, plasterboard and steel. The effect builds gradually rather than all at once, because goods already in transit on 8 September are exempt and retailers sell through existing inventory before restocking at the higher cost. That is why we think two to three months is the right horizon for it to reach the inflation figures. The timing matters: it lands just as the Bank is deciding whether its September pause was the end of cutting or a pause before more.

What the market is pricing. The consensus for the Bank’s late-October decision is a hold at 2.25%, and we agree. Where we go further is the outlook beyond that meeting. We think the September pause was the end of rate cuts for this year, because tariffs and oil above US$90 push headline inflation up from two directions at once, while the U.S. tariff of 50% on $27.6 billion of Canadian goods since 22 August weakens orders for exporters at the same time.

What it means. For a business that imports from the United States, the most useful step is to pull the tariff list against your own product codes this week rather than wait for the invoice. A 25% duty on an input is a pricing decision, not an accounting one, and the earlier customers hear about a price change the easier the conversation. For a business that also carries debt, check whether cash flow was modelled with higher input costs and higher borrowing costs arriving together; most projections assume one or the other. Exporters to the United States face the mirror image, with weaker demand for lumber, steel and manufactured goods. Households should expect higher prices on American cheese, cosmetics, clothing and building materials over the autumn, and borrowers should not plan on a rate cut to offset them.

What would change our mind. A Fed hold on 16 September together with Canadian core inflation below 2.3% in the September CPI, or oil back under US$80 for a month. Either would reopen the case for a cut before year-end. We would also revisit the tariff call if CPI ex-gasoline shows no rise over the next two to three months, which would mean importers absorbed the duties rather than passed them on.

What to watch. The U.S. producer and consumer price reports for August on Thursday and Friday, the Federal Reserve’s decision on 16 September (markets price about 60% odds of a quarter-point hike), and the Bank of Canada’s late-October decision.

We think Canadian five-year fixed mortgage rates hold in the low-4% range through the fall, and that waiting for lower rates before a renewal is a bet against the bond market rather than a plan.

Why we think so. Friday’s U.S. jobs report was far stronger than expected: 162,000 positions added in August against a forecast of 58,000, unemployment steady at 4.1%, and the previous two months revised up by a combined 55,000. A labour market that strong gives the Federal Reserve room to raise rates to fight inflation. A Fed hike does not change the Bank of Canada’s rate, but it does move the bond market that prices fixed mortgages here. Canadian yields move with U.S. yields most days, and on Tuesday the 5-year Government of Canada bond yieldBond yield The annual return an investor gets for lending to a government or company through a bond. Yields rise when bond prices fall. Fixed mortgage rates are priced from the 5-year Government of Canada yield. closed at 3.40% and the 10-year at 3.77%. Lenders price a five-year fixed mortgage off the 5-year yield plus a margin, which is why fixed rates are anchored in the low-4% range and not drifting down.

What the market is pricing. Futures moved to about a 60% chance that the Fed raises its rate by a quarter point on 16 September, from 49% the day before. The market is now pricing what we argued last week, that the era of cheaper money each year is over. A hike on 16 September would confirm it. Where we differ from the market is emphasis: futures treat this as a question about one meeting, while we see it as a change in the direction of travel that will keep Canadian fixed rates elevated whatever the outcome on the day.

What it means. Anyone renewing a mortgage in the next six months should consider holding a rate now. Most lenders offer a rate hold of 90 to 120 days at no cost, which protects against higher rates while keeping the option open if the market turns the other way after Friday’s U.S. inflation data. Variable-rate borrowers are unaffected for now, since prime follows the Bank of Canada, but should not plan on cuts. The dollar is another channel: at 72.55 U.S. cents, it tends to weaken when the gap between U.S. and Canadian rates widens, which raises the cost of travel, subscriptions and goods priced in U.S. dollars. For savers, higher yields mean better GIC rates.

What would change our mind. A Fed hold on 16 September together with Canadian core inflation below 2.3% in the September CPI, or oil back under US$80 for a month. Either would let Canadian yields fall and would reopen the case for a Bank of Canada cut before year-end. We would say so.

What to watch. Thursday’s U.S. producer price index and Friday’s U.S. consumer price index for August, the Federal Reserve’s decision on 16 September and the Bank of Canada’s late-October decision, where the consensus is a hold at 2.25%.

We read a spending surge alongside flat real wages as borrowed demand, and we expect vehicle sales to cool through the fourth quarter as tariff pricing reaches showrooms.

Why we think so. The spending numbers are strong. Statistics Canada reported 547,673 new motor vehicles registered in the second quarter, the highest for that quarter since 2019, and June retail sales of $78.4 billion, 7.2% higher than a year earlier. Read beside the August jobs report, which showed wages growing just 2.0%, that pace of spending cannot be explained by rising incomes. It is more likely a mix of credit and timing: households buying big-ticket items before prices rise. Vehicles are especially sensitive to both tariffs and financing rates, and both moved against buyers this week as counter-tariffs took effect and bond yields rose. Borrowed demand is repaid later, at whatever rate is then on offer, which limits how long it can last.

The bigger picture. When buyers expect prices to rise, they bring purchases forward. That lifts sales in the short run but borrows from future quarters, because a household that bought a car in June will not buy another in December. Once the expected price increase arrives, sales typically dip below their earlier trend for a while. Strong spending also has a policy consequence: it gives the Bank of Canada one more reason not to cut, since the economy is not showing the kind of weakness in demand that would justify cheaper money.

What it means. For anyone with a vehicle purchase in their plans, the financing rate matters more than the sticker price this year. A 7-year loan at 7% adds roughly a quarter of the price in interest, and shorter terms and a larger down payment change that arithmetic more than any dealer incentive. For households using credit to keep spending steady while real wages are flat, the risk is that repayments arrive when rates are no lower and incomes no stronger. Retailers and dealers should plan for a softer fourth quarter rather than extrapolating the first half. For the wider economy, consumer strength is one of the reasons we think the Bank’s September pause ended the cutting cycle for this year.

What would change our mind. Vehicle registrations holding at the second quarter’s pace into the fourth quarter after tariff pricing has reached showrooms, alongside a pick-up in wage growth. That would mean demand is being supported by income rather than borrowed from the future, and we would say so.

What to watch. Friday’s U.S. consumer price index for August, the Federal Reserve’s decision on 16 September, and the Bank of Canada’s late-October decision, where the consensus is a hold at 2.25%.