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Canada: Import Prices on the Rise Despite Loonie’s Strength

ByThe National Bank of Canada
Published 02/07/2012, 11:18 PM
Updated 05/14/2017, 06:45 AM

Conditions in the 2000s were highly conducive to keeping inflation in Canada in check. The massive influx of cheap Asian imports and the loonie’s sharp ascent contributed to curb the progression of the Canadian consumer basket via weak goods inflation. Those conditions have now changed. As today’s Hot Chart shows, despite a slight appreciation of the loonies over the last two years, import prices are strongly on the rise in Canada. For years, currency appreciation meant lower import prices as evidenced by its strong moving correlation coefficient (24 months) averaging 80% between 2000 and 2010. This coefficient felt drastically recently and is now at -30% indicating that those two variables have been uncorrelated statistically in the last 24 months. This increase in import prices explains why the goods component in core CPI inflation rose last November at its highest rate since 2001 and was at 1.28% in December, well above the average observed since 2000 (0.55%). In the past, the loonie’s strength was a cause of concern for economists but they knew it also had an advantage in taming inflation. This advantage seems to be fading now.
Canada Import prices on the rise despite loonie’s strength

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