CEIC Data Blog

Strong Canadian Dollar Fails to Slow Inflation


News@lert: Due to high inflation and weakness of the U.S. dollar, in April the Canadian dollar hit its highest level against the U.S. dollar in the last three years. This happened at a moment of inflationary concerns – Canada’s Consumer Price Index reached its largest monthly increase in two decades, placing the country among the major recovering economies affected by inflation in the last year. Not only did the strong Canadian dollar fail to protect the economy from rising prices, but surprisingly it didn’t prevent imported inflation from the United States, considering that the country is a major importer of U.S. goods. The import price index reported 4% growth in March and more than 6% in April, compared to the same months of 2010.

Price Index and Exchange Rate against USD
Canada Inflation
Chart provided by: CEIC Data

Of course there are positive effects of the high levels of the currency. Due to the strong Canadian dollar in the past year, domestic demand reported significant restoration. In the first quarter of 2011, final domestic consumption soared by 5.8% compared to the same period of 2010 and 10.6% compared to 2009. Imports also reported significant increases due to the strong currency – in April imports soared by 12.4% on an annual basis. Thus, it appears that the strong currency has not had a negative impact on the competitiveness of Canada’s export goods. In addition, in April the country’s exports rose by 10.7% compared to the same month of 2010.

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By Alexander Ivanov in Bulgaria – CEIC Analyst

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