Canadian Manufacturing

Bank of Canada watching supply chain issues closely, weighing on economic rebound

Finance Minister Chrystia Freeland said the government is mindful of supply-chain issues in the Canadian economy, and is watching for signs of strain at Canadian ports.

October 15, 2021  The Canadian Press

The head of the Bank of Canada is warning that the faster pace of price increases may persist longer than first thought, and slow the pace of Canada’s economic recovery, as global supply-chain issues weigh on the domestic economy.

Annual inflation rates have run above the Bank of Canada’s comfort zone since April, reaching 4.1 per cent in August. The central bank expects readings higher than its target of two-per-cent through the rest of the year.

Governor Tiff Macklem said bottlenecks in the international movement of goods and oil aren’t easing as quickly as he and his counterparts from around the world expected.

Still, he believes the hiccups will only cause one-off price increases, rather than ongoing inflation.

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What has happened globally is a sharp rebound in consumer spending particularly for goods that need to be shipped through supply chains that have been damaged by a sharp drop in demand last year, and ongoing COVID-19 outbreaks and public health measures.

All this affects inventories of in-demand consumer products and the delivery of parts needed to build things like cars, and pushes up transportation costs that get passed on to consumers.

And at the same time, shipping delays mean households can’t get goods as fast as they want, meaning their spending is delayed, which bites into the pace of growth.

“We’re still expecting a good rebound. It may be not quite as fast as we had in July’s forecast,” Macklem said on a videoconference with reporters late on Oct. 14.

“What we’ve seen since then is these supply constraints. They were certainly a factor then but they are proving to be more complicated.”

On Oct. 13, U.S. President Joe Biden announced a plan to have the Port of Los Angeles run round-the-clock to ease constraints that have put upward pressure on prices for goods as companies pass on higher costs. Biden also called on companies to do more themselves.

Finance Minister Chrystia Freeland said the government is mindful of supply-chain issues in the Canadian economy, and is watching for signs of strain at Canadian ports.

Supply-chain concerns came up in talks with Freeland’s global counterparts, including Hong Nam-ki from South Korea and Janet Yellen of the United States, during meetings this week in Washington.

Freeland’s meeting with Yellen also included warnings that any new “Buy American” provisions in the Biden administration’s economic aid package, which would limit the ability of Canadian firms to compete for U.S. government contracts, would be met in-kind.

“What Canada is saying to our partners is, our procurement opportunities will be open to your companies just as much as your procurement opportunities are open to ours,” Freeland said.

The note, obtained by The Canadian Press under the access-to-information law, linked Buy America to supply chain strains seen during the pandemic. Officials suggested Freeland argue Canada was a trusted supplier to the U.S. and the two countries needed to “further strengthen our mutually beneficial cross-border supply chains.”