Risks

Risks related to Canada’s trade relationship with the United States remain elevated. The outlook could also be affected by risks that are not directly related to tariffs.

The base-case projection incorporates the tariffs and trade policies in place on October 22, 2025. It assumes that those tariffs and policies—including the Canada-United States-Mexico Agreement (CUSMA)—remain in place throughout the projection horizon (see the Tariff and other assumptions section).

Considerable uncertainty surrounds both the Canada-US trade relationship and the economic impacts of US tariffs. Therefore, in the current environment, risks around the base-case forecast are particularly elevated.

The assumption for fiscal policy reflects information from published provincial budgets and new federal fiscal measures that have been tabled. However, the federal government has announced plans to significantly increase infrastructure investment and defence spending while reducing operational expenses. The federal budget that will be tabled on November 4 will provide more clarity on the path of fiscal policy.

Main upside risks to inflation

US tariffs could raise inflation in Canada more than expected

The cost of higher US import tariffs is affecting inflation in the United States. Inflation in Canada could also be affected in several ways, including the following:

• US tariff-related costs that are passed on to Canadian businesses could be greater than anticipated because supply chains between the Canadian and US economies are closely connected.
• Supply chains that rely on US businesses could be disrupted, and the costs of reconfiguring trade could be higher than assessed. This could raise production costs and import prices by more than expected.
• Multinational corporations could raise international prices to help offset profit losses in the United States caused by tariffs.
• A depreciation of the Canadian dollar would increase the price of imports, adding to business costs and consumer prices.

Any of these impacts could increase inflationary pressures relative to the base-case projection.

Sectoral tariffs could be reduced

Trade-related uncertainty and higher tariffs are having considerable impacts on Canadian exports, business investment and employment in affected sectors. Sectoral US tariffs—particularly on steel and aluminum—have led to a rapid reduction in Canadian exports of these products. However, an agreement could result in a significant decrease in US tariffs from current levels. This would reduce uncertainty and lead to a rebound in export demand and production in affected sectors. Lower uncertainty could also lead to a pickup in business investment and in spending by households. Overall, this would boost demand and inflation.

Main downside risks to inflation

Trade policy could weaken the economy more than expected

US trade policy remains unpredictable, and tariffs could increase or broaden in the near term. The upcoming review of CUSMA is also an ongoing uncertainty. Affected businesses and households continue to face complex planning decisions. Businesses and consumers will be cautious as they wait for more clarity about the future of CUSMA. This caution could lead to slower-than-expected growth in demand and lower inflation. In addition, the continued trade policy uncertainty could lead businesses to redirect their investment spending from Canada to the United States to avoid tariffs.

Global financial conditions could tighten

The outlook for US economic growth is increasingly tied to the investment in and future use of artificial intelligence (AI). Throughout 2025, US domestic demand was significantly supported by AI-related investment spending and a rise in the stock prices of businesses linked to AI. A significant reassessment of the prospects for AI could result in a sharp correction in stock market valuations. A correction could hurt consumer confidence in the United States and in many other countries, including in Canada. This, in turn, could lead to a widespread economic downturn.

At the same time, long-term government bond yields could rise in response to the rapid increase in government debt around the world. This would lead to higher borrowing costs for Canadian households and businesses.

In either case, the result would be weaker domestic demand, which would then lead to excess supply and put further downward pressure on inflation in Canada.