Canadian tariffs raise retail prices by 6%, pass-through incomplete

A Bank of Canada working paper finds that Canadian retaliatory tariffs on US imports led to a 6 percent increase in retail prices for affected goods. This implies a pass-through of roughly one quarter of the 25 percent tariff, with effects largely reversing after removal.

Retail prices climb 6% from tariffs

Prices of tariffed goods rose gradually, peaking at 6 percent after three months by mid-June 2025, implying a pass-through of roughly one quarter of the 25 percent tariff.

This effect was observed using daily product-level posted prices from seven major Canadian retailers, covering groceries, appliances, hardware, electronics, clothing, footwear, and personal care.

The study, which analyzed data from October 2024 to February 2026, found little spillover to untariffed substitutes—domestic or third-country imports in the same HS8 categories as tariffed US products.

As a result, the aggregate effect on the Consumer Price Index was small, adding roughly 0.3 percentage points at the peak.

Evidence from Canadian International Merchandise Trade data showed little systematic decline in prices received by US exporters, suggesting limited absorption by foreign firms.

The price effects largely reversed within four months after most Canadian retaliatory tariffs were removed on September 1, 2025, with the reversal nearly complete for appliances, electronics, and groceries.

Expectations and visibility drive pass-through

Tariff-induced price effects varied substantially across retailers, with the largest effects observed for appliance and electronics retailers.

Retailer-level pricing decisions and supply conditions played an important role, with 41 percent of the variation attributed to retailer heterogeneity.

Discrete jumps in pass-through were documented around major trade policy announcements, such as on April 2, 2025, when the US administration announced a broad escalation of tariffs.

This suggests retailers revised their expectations about policy persistence, treating the tariffs as more likely to remain in effect.

Furthermore, tariff visibility at the point of sale, such as a 'Tariff' banner on price tags, was associated with larger and faster pass-through.

This indicates that retailers are more willing to raise prices when the policy origin of a cost increase is salient to consumers, influencing consumer perception and pricing strategies.

Beyond the statutory rate

This study offers a rare, granular view into the real-time transmission of temporary retaliatory tariffs to consumer prices outside the US.

Its findings underscore that the inflationary impact of trade policy extends far beyond statutory rates, heavily influenced by market expectations, retailer strategies, and even consumer awareness.

For policymakers, this highlights the complex, behavioral dimensions of trade shocks and their implications for inflation management.