Trade disruption can increase inflation variability

Bank of Canada (BoC) Governor Tiff Macklem said on Tuesday that trade disruptions could mean further deviations in inflation from the BoC’s 2% target, according to Reuters.

Key recommendations

“We need to focus on risk management, balancing upside risks to inflation with downside risks to economic growth.”

“Trade disruption may also increase inflation variability.”

“The cost of global goods may not fall as fast as globalization, and this could put more pressure on inflation.”

“The pandemic has shown that when an economy is already overheated, supply disruptions can have a huge effect on inflation.”

“The growth we are seeing in trade is shifting from goods to services; the pandemic may have provided a more lasting boost to trade in services.”

“Global trade has slowed and that’s a big concern for Canada.”

“The security risks are real and must be addressed, but it is important that they do not become a pretext for ineffective protectionism.”

“The seemingly vast potential of digitization suggests that future growth in commerce will tilt toward services.”

“Canada needs to build better trade relationships and produce the products people want to buy.”

Market reaction

These comments failed to trigger a noticeable reaction in USD/CAD. At press time, the pair was up 0.1% on the day at 1.3575.