The ongoing strike by Canadian dock workers is creating concerns about inflation ahead of the Bank of Canada’s (BoC) policy decision next week. Economists are warning that if the strike continues, it could result in supply-chain disruptions that fuel inflation.
The strike, which began on Saturday, involves approximately 7,500 dock workers demanding higher wages. It has disrupted operations at the Port of Vancouver and the Port of Prince Rupert, two of Canada’s major ports responsible for exporting natural resources and commodities, as well as importing raw materials.
The impact of the strike is estimated to be worth around $374 million in trade per day. While the strike may also have an effect on economic activity, the central bank is primarily concerned about the potential inflationary pressures caused by supply-chain disruptions.
Andrew Grantham, a senior economist at CIBC Capital Markets, stated that the supply-chain impact and inflationary pressures pose a bigger risk. He further emphasized that the Bank of Canada always considers any short-term volatility in trade or GDP figures irrelevant.
The Bank of Canada raised interest rates to 4.75% in June after a five-month pause, citing higher-than-expected growth and a tight labor market as factors contributing to persistent inflation. Although inflation has decreased from its peak of 8.1% last year to 3.4% in May, the central bank expects it to take until the end of next year to reach its 2% target.
Money markets anticipate further tightening by the central bank, possibly as early as next week’s policy decision. Most economists surveyed believe there will be another rate hike.
Both the federal and provincial governments in Canada are urging the parties involved in the strike to resume talks after negotiations broke down on Tuesday. It is crucial to resolve the strike as soon as possible, as around two-thirds of Canada’s total global trade is with the United States.
The strike is already causing significant disruptions, with the Canadian Manufacturers & Exporters industry body stating that it is disrupting $500 million in trade per day. Robert Kavcic, senior economist at BMO Capital Markets, highlighted that if the strike continues, there will be noticeable consequences.
In conclusion, the ongoing dock workers’ strike in Canada is raising concerns about inflation and supply-chain disruptions. With the strike impacting major ports responsible for the country’s trade, there is a risk of increased inflation. The Bank of Canada is expected to consider these factors when making their upcoming policy decision. Both the federal and provincial governments are urging negotiations to resume to minimize the economic damage caused by the strike.
