Proof Point: Canadian inflation is unlikely to pick up again like in the U.S.
Proof point: The recent outperformance of the U.S. economy is led by the services sector—a driver that hasn’t materialized in the Canadian economy to the same extent. That makes it less likely that US inflation reacceleration will be replicated in Canada.
Canada and the U.S. have one of the closest bilateral economic relationships in the world after decades of collaboration and trade liberalization. The two countries share the world’s longest international land border (close to 9,000 km long). Across that border, $1.3 trillion worth of goods and services were traded in 2023, accounting for two-thirds of Canada’s global trade last year. The two countries also share strong cultural and infrastructure ties and have coordinated closely to meet defence and national security priorities.
Economic performance has generally been in sync between the two countries in the past because of their close relationship, along with inflation trends. But more recently, the Canadian economy has started to severely and persistently underperform. Compared to 2019, Canadian per-capita real GDP as of Q1 this year fell short of the U.S. by 10%—the largest gap since at least 1965. Inflation readings have started to diverge as well. The headline consumer price index in the U.S. has grown at an annualized 4.3% from December to April, compared to just 1.3% in Canada.
