(Adds comment on business investment; hypothetical action)
By Andrea Hopkins
WHISTLER, British Columbia, June 2 (Reuters) - The uncertainty over rising trade tensions and escalating retaliation in response to U.S. import tariffs means the Bank of Canada will be data-dependent as it sets monetary policy, Governor Stephen Poloz said on Saturday.
Just days after the central bank signaled more interest rate increases were in store, Poloz reverted to a wait-and-see approach to rate hikes in the wake of Friday’s move by the United States to impose steel and aluminum tariffs on Canada, Mexico and the European Union.
“We’re certainly not making policy on the basis of hypotheticals or theoretical responses to these changing conditions - it is the actual responses that will matter,” Poloz told reporters at the end of a meeting of Group of Seven (G7) leading industrialized nations’ finance ministers and central bankers in the mountain resort of Whistler, British Columbia.
Finance leaders of the closest U.S. allies vented their anger at metals tariffs levied by U.S. President Donald Trump’s administration, but ended the three-day meeting with no solutions, setting the stage for a heated fight at a G7 summit next week in Quebec.
“There is no question it adds to the uncertainty that we face in understanding the economy as we go forward. But the most important element here is how the data are evolving,” Poloz told the closing news conference.
The tariffs were imposed on Canada, Mexico and the European Union after they refused to accept quotas in negotiations with U.S. Commerce Secretary Wilbur Ross.
Japan’s metals producers have been paying the tariffs since March 23.
Poloz said business investment was strong in the first quarter despite the trade uncertainty, but that escalating trade tensions and pledges by Canada and the EU to retaliate with tariffs of their own will likely feed inflation pressures.
“Generally the way one looks at a scenario like this is when there (are) tariffs which disrupt trade, it raises the prices to consumers,” Poloz said. “It is why the data will play the most important role and yes, we will have to determine how much is inflation being boosted, albeit most likely temporarily, by those tariffs.”
Poloz said it may take “several months” for the tariffs to feed through to higher consumer prices, but the effect will fall out of the year-over-year growth rates for inflation farther down the road.
The Canadian central bank has hiked rates three times since July 2017, most recently in January, and financial markets expect at least one more increase this year, likely in July. (Reporting by Andrea Hopkins Editing by Paul Simao and G Crosse)