He emphasized that while tariffs may push inflation higher, their impact could be offset by weaker economic activity. According to De Guindos, inflation remains on track to converge toward the ECB’s 2% target, though rising uncertainty has made the economic outlook less predictable compared to six months ago.
Meanwhile, Spain is set to increase its defense spending to 2.7% of GDP over the next four years, adding €6 billion annually to its budget. This, along with a historic German debt restructuring plan, has fueled inflation expectations across the Eurozone—posing a challenge to the ECB’s current monetary easing stance.
On Friday, ECB policymaker and Austrian Central Bank Governor Robert Holzmann voiced support for maintaining interest rates at current levels during April’s policy meeting. His stance was driven by the assumption that U.S. tariffs and Germany’s defense spending are helping contain inflationary risks. Trade tensions escalated further last week after U.S. President Donald Trump threatened to impose 200% tariffs on European alcohol, responding to the EU’s proposed countermeasures against the U.S.’s 25% levy on imported steel and aluminum.
On the geopolitical front, EU High Representative for Foreign Affairs Kaja Kallas expressed cautious optimism about a potential ceasefire agreement between the U.S. and Russia regarding Ukraine. However, she noted that any deal would likely come with conditions.
According to reports, the U.S. has communicated to G7 members that Russia might prolong negotiations, seeking to alter the narrative. The key sticking point remains Ukraine’s territorial concessions, with the EU playing a decisive role in any final agreement.
Bank of Canada and Inflation Outlook The Bank of Canada (BoC) has issued a warning that monetary policy alone cannot mitigate the effects of a trade war.
Following seven consecutive rate cuts, Governor Tiff Macklem and the Governing Council may now take a more cautious approach, carefully assessing both downward inflationary pressures from a slowing economy and upward pressures from rising costs.
Canada’s Consumer Price Index (CPI) is forecast to rise to 2.1% in February from 1.9% in the previous year.
Persistent inflationary pressures could trigger a bullish reaction in the Canadian dollar, potentially limiting the BoC’s ability to get implement further rate cuts at its next policy meeting on April 16.
