Living In The Past

As I have said before the Bank of Canada is living in the past with its anti-inflation fetish for raising interest rates. And I am not the only one who noticed they are stuck in the Mulroney era with their policies.

During the 1985-90 period, for example, when oil prices were very low, inflation in Calgary was well below the national average, while inflation in Toronto and Montreal generally outpaced the national average. That episode also underscores that the net effect of an oil shock on overall inflation need not be a wash -- national inflation actually rose during that period of cheap oil, from about four per cent to five per cent, but Toronto's inflation rose more, to 6.3 per cent.

The bottom line? There can be little doubt that the current energy boom contains some inflation risks for Canada. However, so far, the inflation risks in oil-producing regions are being at least partly offset by disinflationary pressures in regions that do not produce oil, but use a lot of it.

Stephen S. Poloz is senior vice-president corporate affairs and chief economist for Export Development Canada.

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