Slowing energy demand likely hit Canadian inflation

Canada is today releasing April’s inflation figures. The numbers are likely to reflect the weakness of global energy prices, which

inflation canada

Photo: Canadian Press/Justin Tang

Canada is today releasing April’s inflation figures. The numbers are likely to reflect the weakness of global energy prices, which are still faltering from pandemic-induced demand shocks.

The Bank of Canada maintains an inflation-control target range of 1% to 3% to increase long-term price stability in Canada’s financial markets. Today’s figures are expected to fall below that range and continue March’s trend of decreasing inflation. Historically, price levels have not shrunk by this amount since the 2008 global financial crisis, suggesting that further government intervention to stabilise prices and maintain growth is likely.

Decreasing global energy demand is the greatest contributor to today’s inflation numbers. Energy accounts for 10% of Canada’s GDP and 23% of its exports; 90% of those exports going to the US. US demand for gasoline in April shrunk by 40% from the same period last year, highlighting how Washington’s ongoing pandemic response directly affects Canada’s ability to maintain economic stability.

Ottawa will continue to support the Canadian energy sector, but firms will cut oil and gas production in an attempt to raise prices. As capital pulls out of Canadian shale oil, new waves of the COVID-19 could lead to further shutdowns and disruptions of the US economy. Ottawa will likely direct state investments to repurpose existing natural gas infrastructure to produce and export hydrogen and preserve jobs, while scaling up wind and solar to meet the country’s Paris Agreement commitments and attract new foreign capital.

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