Canada’s unemployment rises to 7% as Poloz warns of inflation risks and further layoffs from tariffs
Canada’s unemployment rate rose to 7% in May, and more layoffs may follow, according to former Bank of Canada Governor Stephen Poloz, who linked weakening labor demand to trade uncertainty and inflationary pressures from counter-tariffs.
Speaking during a webinar on Tuesday, Poloz said the downturn in hiring is a possible recession signal, and additional job losses may emerge in the coming months due to ongoing trade friction.
While this development will be monitored by the Bank of Canada, he noted that fiscal measures remain available to address economic fallout, allowing the central bank to maintain focus on inflation.
As reported by the Financial Post, inflation reached 1.7% in April, while core inflation—closely watched by the central bank—came in at or above 3%.
“Inflation has been kind of firming lately, using the core measures the Bank of Canada pays attention to,” said Poloz, now a special adviser at Osler, Hoskin & Harcourt LLP. “And the counter tariffs that the government has put in place will start boosting inflation in the next couple of months.”
The Bank of Canada held its policy rate at 2.75% on June 4, pausing for a second consecutive time as it evaluates the economic effects of tariffs. Governor Tiff Macklem said that while the impact of retaliatory trade measures had yet to surface in the consumer price index, it is expected in the months ahead.
The federal government has implemented 25% tariffs on nearly $60 billion worth of US imports in response to American trade actions, with exemptions for certain goods. According to the Financial Post, there have also been indications of further tariff actions to come.
Poloz also cited the central bank’s experience following the pandemic, when inflation rose faster than anticipated. On the other hand, Macklem had initially described the spike as “transitory.”
“Transitory turned out to be two years,” Poloz said, adding that central banks are now more alert to the risks of underestimating inflation.
Canada’s economy expanded by 2.2% in the first quarter, largely due to businesses accelerating exports ahead of US tariff announcements. Macklem has since projected weaker second-quarter growth, and some economists expect a recession later in the year.
Poloz said tariffs could be creating structural challenges that limit the effectiveness of monetary policy. He also warned global income could decline by up to $40 trillion over the coming years under current trade conditions.
