Shifts in cost pressures

Cost pressures are expected to ease. But businesses continue to face high input costs due to US tariffs and the broader reconfiguration of global trade.

Past cost increases have boosted inflation

Until recently, several factors were increasing input costs. These factors include:

• spikes in global shipping costs at the end of 2024
• severe weather that increased agricultural prices, such as for coffee and cocoa
• the depreciation of the Canadian dollar starting in late 2024 and continuing into early 2025

These factors raised business costs and contributed to higher prices for non-energy goods. While some pressures have already eased, the lagged effects of past increases are still filtering through to consumer prices (Chart 36). These effects are anticipated to fade by early 2026.

Shifts in trade are expected to add costs

Canadian counter-tariffs on US imports are pushing up costs and inflation (Chart 37). The peak impact from tariffs on the level of the consumer price index (CPI) is now projected to be around 0.4% in the first quarter of 2026. This has been revised down from about 0.8% in the July Report because most counter-tariffs have been removed. So far, counter-tariffs are estimated to have raised the price level by about 0.3%.

The broader cost implications of trade disruptions and the reconfiguration of supply chains are difficult to predict. Foreign tariffs, including those in the United States, are also a concern because they could raise the costs of goods imported by Canadian companies.

At the same time, several factors could help alleviate these upward pressures on prices. Global overcapacity in manufacturing and strategic underpricing by exporters could exert downward pressures, while the adoption of artificial intelligence could reduce production costs.

Some Canadian businesses are reporting higher costs due to these global adjustments, but weak demand is limiting their ability to pass on increases to their customers (Chart 38 and Chart 39).1^, 2 Businesses may decide to absorb higher costs by reducing markups, especially if profit margins are healthy.

Endnotes