As a small open economy, Canada’s price level is vulnerable to external factors that affect import prices such as geopolitical risks, exchange rate variations, global supply constraints, etc. As a large portion of consumption and inputs used in production are imported, rise in import prices will push up consumption prices and production costs as well, and hence may lead to higher inflation. This article aims at examining to what extent the current high inflation in Canada is impacted by the rise in import prices, and then examining what drive the rise in import prices.
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