Canada’s imports reached a record high in March, driven by a surge in consumer goods from China and vehicles and automobile parts from the United States and Mexico. This uptick suggests that the supply bottlenecks plaguing the global economy for two years may be starting to ease.
Supply Chain Disruptions: A Two-Year Plight
The global economy has been grappling with supply chain disruptions since 2021, leading to shortages and price increases. These disruptions have had a significant impact on inflation, pushing year-over-year increases in the consumer price index to their highest levels in over three decades.
Statistics Canada Reports Record Imports
According to Statistics Canada’s latest data, imports jumped by 7.7% in March from February, marking the second consecutive increase. The biggest contributor to this growth was a 40-per-cent surge in oil imports, as prices skyrocketed following Russia’s invasion of Ukraine. Canadian importers stockpiled crude from the U.S., Saudi Arabia, and Nigeria.
Automobile Industry Sees Relief
The data also showed significant increases in imports of automobiles and parts, indicating that the global chip shortage slowing North American automobile production may be becoming a gentler headwind for carmakers.
Record Imports from Non-U.S. Countries
Imports from countries other than the U.S. rose to a record high, led by a 29-per-cent increase in shipments of computers, cellphones, industrial equipment, and consumer goods from China.
Easing Inflationary Pressures
A more fluid supply of goods would ease inflationary pressures, which have pushed year-over-year increases in the consumer price index to their highest levels in over three decades. The Bank of Canada has been closely monitoring inflation and has pledged to act "forcefully" to bring it down.
Trade Deficit Widens
Imports grew faster than exports in the first quarter, resulting in a trade deficit. However, this bodes well for business investment, which could lead to productivity improvements that eventually take some heat out of inflation by increasing the economy’s capacity to generate non-inflationary growth.
Bank of Canada to Act Forcefully
Randall Bartlett, senior director of Canadian economics at Desjardins Group, estimates that first-quarter growth is tracking at an annual rate of 5.5%, much faster than the Bank of Canada’s estimate of three percent. "The weakness of (first-quarter) trade does not alter our view that the BoC will need to act forcefully at its June meeting," Bartlett said.
Conclusion
While the global economy still faces significant challenges, the record surge in imports is a positive sign that supply chain disruptions may be easing. As business investment picks up and productivity improves, inflationary pressures should decrease, allowing the Bank of Canada to slow its march to higher interest rates.
