When Canada responded to sweeping tariff hikes by the U.S. by imposing retaliatory tariffs of its own in early 2025, the prices paid by Canadian consumers rose by about 6% on those goods, according to a new staff working paper from the Bank of Canada.
Using daily price data from seven large retailers on goods affected by the tariffs — including groceries, appliances, hardware, electronics, clothing and footwear, and personal care — researchers at the central bank examined the impact of 25% retaliatory tariffs on consumer prices.
The paper said that the data indicates that about one quarter of the tariff was ultimately passed through to consumers — as prices rose by 6% as of mid-June, about three months after the tariffs were first introduced.
“Pass-through shifted with trade-policy news and was larger for products labelled ‘tariffed,” showing that tariff-induced inflation depends on policy expectations and tariff salience,” the paper noted.
The research also found that there was little evidence of spillover price effects on substitute products that didn’t face tariffs — and that most of the price hikes were unwound relatively quickly after the tariffs were scrapped.
“The reversal is nearly complete for appliances, electronics, and groceries, but only partial for household goods,” it said.
Given the lack of spillover effects and the speedy reversal of the price hikes, the impact of the tariffs on the overall Consumer Price Index (CPI) was relatively modest, the paper noted — estimating that they added roughly 0.3 percentage points to the CPI at its peak.
The researchers also found that the price impact varied significantly across retailers.
“The largest effects are observed for appliance and electronics retailers, followed by household goods and grocery chains,” it said — whereas the variation across product categories was more limited, “suggesting that retailer-level pricing decisions and supply conditions play an important role in determining pass-through.”
The research also found that the tariffs had a bigger impact on retailers and goods that have a higher share of U.S. imports and leaner inventories.
Additionally, it noted that firms that expected the tariffs to stay in place for an extended period passed through a larger share of the tariffs to consumers, compared with firms that were anticipating the policy shift to be temporary.
“Taken together, the results show that the inflationary effects of tariffs depend not only on statutory tariff rates and product coverage, but also on expectations about policy persistence, retailer-level pricing strategies and the information provided to consumers at the point of sale,” the paper noted.
“Temporary tariffs can have meaningful retail-price effects, but those effects may be muted when the policy is expected to be short-lived, when retailers have scope to adjust margins or inventories, or when tariff exposure is not salient to consumers,” it said. “Conversely, broader, more persistent, or more visible tariff regimes may generate larger and faster pass-through to consumer prices.”