Canada’s annual rate of inflation rose to three per cent in July, but Alberta’s rate came in higher at 4.2 per cent, one of the highest in the country. Trevor Tombe, an economist at the University of Calgary and director of fiscal and economic policy at the School of Public Policy, discusses how affordability pressures may be affected by tariff negotiations between Canada and the U.S. with Alberta Primetime host Michael Higgins. This interview has been edited for length and clarity. Michael Higgins: How worrisome a development are the latest inflation numbers with U.S. President Donald Trump’s tariff deadline looming? Trevor Tombe: The inflation report we got and the Alberta budget situation are tied to fundamentally the same global shock, and that is oil prices rising following the conflict between the U.S. and Iran starting in late February. With high oil prices, what we see is high gasoline prices, and over time, that feeds into the cost of producing many other goods and services. And so the prime reason for inflation rising in Canada and elsewhere around the world is a result directly from these high oil prices. If we were to strip that out, then we’re much closer to two per cent. It’s certainly a strain on individuals, but it’s not the kind of sustained inflation pressure that we saw a few years ago. This is something very much tied to this one event. MH: What does that say about the health of the Canadian economy? TT: In early 2025, the U.S. was talking about broad-based tariffs of 25 per cent on literally everything that we sold there, and 10 per cent on energy. Had they followed through on those tariffs, Canada would have had a very difficult time avoiding a recession – a real recession – in 2025, but the U.S. never followed through on that. Now we’ve struggled in Canada over the past many quarters, but primarily because of uncertainty and investment falling as a response, and hiring being a challenge, too, for firms not knowing what the state of the trading relationship is actually going to be between Canada and the United States. So it’s been a rough year-and-a-half for the Canadian economy, where growth overall has flatlined, if you will. But it does look like growth is returning, thankfully: unemployment has been falling, the pace of GDP growth is likely going to be very strong when we get that data at the end of this month. And that’s perhaps because the U.S. never did follow through on all of the big changes that they originally suggested they would. MH: How different would you say Alberta’s financial picture is now, compared to when the budget was tabled, as a consequence of the conflict in the Middle East? TT: It’s fundamentally different now as a consequence of high oil prices than it was following the budget in February, and this, as you noted, was just days or the next day after the budget was tabled. Every $1/barrel change in the price of oil is about $700 million to the government of Alberta’s bottom line, and so today we’re looking at oil prices that are roughly $25/barrel higher than where they were at the start of the year. So it looks like Alberta is potentially going to end this fiscal year in a surplus. Maybe, if the prices that markets suggest oil prices will be, if that actually follows through, we could be looking at a surplus of about $6 billion this year. That’s a big improvement from the $9-billion deficit that the government was anticipating. MH: How do you weigh fiscal management on the part of the Alberta government into that broader equation? TT: They haven’t responded to the current shock in a really big way. They did switch how they’re going to address some of the affordability pressures. Instead of the gas tax reduction, the government will be rolling out with some cash transfers to eligible individuals instead. And at the end of the day, spending is not really going to be all that different relative to what was projected in the budget. It’s the revenue side of things that is the big change from all of this, just from natural resource revenues rising because of high oil prices. MH: What do you think happens if trade negotiations falter, and the Trump administration’s threatened 50-per cent tariffs are actually implemented this week? TT: Luckily – or in some years, unluckily for Alberta – our revenue goes up and down not because of broad changes in the economy, but because of changes in oil prices. And so, as long as global oil prices remain high, then whatever happens with the trade negotiations with the United States, that surplus is likely to remain in place. For the broader Canadian economy, of course, trade with the United States matters, and new tariffs would be an additional drag. But a lot of the economic hit that Canada’s economy was looking to absorb from high tariffs has been absorbed already indirectly from high uncertainty. We’re about two-per cent smaller than we would have been had U.S. trade policy not fundamentally changed last year. And these new tariffs that we’re looking at affects only about five per cent of Canadian exports. So I don’t want to downplay the disruption that would occur in affected sectors, but the broader macroeconomic implications of these tariffs are muted. It’s not the kind of shock that would cause a recession, for example. MH: How does Mark Carney’s government navigate this current situation with the tariff deadline looming? TT: I certainly don’t envy the position that any government is in while trying to negotiate with the United States these days; it’s made all the more difficult because the underlying motivation for the tariffs in the United States is not clear. President Trump is fundamentally unpredictable, and a lot of the policy choices made in the United States over the past year and a half have not been grounded in the most rational or coherent policy analysis, if you will. So if there is a deal to avoid the 50-per cent tariff, then something else will change in the future. There’ll be some other new set of tariffs that the president will communicate for some reason or another, and it almost doesn’t matter what the arrangements are because you know, at the end of the day, there doesn’t appear to ever be a deal with this president. The uncertainty will remain, and they’ll enact whatever policies they want to enact south of the border. And maybe Canada’s best response to all of this is to just focus on things we can control – domestic policy – rather than putting too much weight on negotiated outcomes with the United States.
