How commodity prices affect our economy - Bank of Canada

These are unusual times

Believe it or not, higher commodity prices can be a good-news story. Canada exports many commodities like oil and gas. When their prices are higher around the world, our exports command a higher price. This pumps more money back into the economy.

But as we all know, these aren’t normal times. Foreign investment in our energy sector is not as high as in the past because investors think demand for fossil fuels won’t be as strong in the long run. In addition, the Canadian dollar isn’t rising along with commodity prices like it normally might. If the Canadian dollar was stronger, it would cost less to import goods. This would help tamp down the high inflation we’re all experiencing.

With prices so high, some people are questioning whether we’re at risk of another period of stagflation like we saw in the 1970s. At that time rising inflation was accompanied by sluggish growth and high unemployment. This isn’t the case today.

• With growth in gross domestic product averaging 6% in the last half of 2021, the economy is running hot.
• Unemployment is at a record low of 5.2%.

And, unlike the turbulent times in the 1970s, the Bank now has a strong track record of keeping inflation low, stable and predictable. Since we adopted inflation targeting in 1991, inflation rates—and Canadians’ expectations of future inflation—have been well-anchored at our 2% target.

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How commodity prices affect our economy - Bank of Canada
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