Canada port strike may add to inflation concerns ahead of rate decision

By Fergal Smith

TORONTO (Reuters) -The Canadian dock workers strike is another factor for the Bank of Canada (BoC) to consider ahead of its policy announcement next week because the longer it drags on, the greater the risk of supply-chain disruptions that fuel inflation, economists said.

Some 7,500 dock workers went on strike on Saturday for higher wages, upending operations at two of Canada’s three busiest ports, the Port of Vancouver and Port of Prince Rupert. The two ports are key gateways for exporting the country’s natural resources and commodities, and for bringing in raw materials.

The walkout impacting C$500 million ($374 million) in trade per day, now in its sixth day, could also hurt economic activity, though that is less of a concern for the central bank, especially if overtime work later clears backlogs.

“The supply-chain impact and any kind of inflationary pressure is the bigger risk,” said Andrew Grantham, senior economist at CIBC Capital Markets.

“If there’s a near-term volatility in the trade figures or even the GDP figures based on this, the Bank of Canada always looks through that volatility no matter where it comes from.”

The BoC came off the sidelines in June after a five-month pause, raising interest rates to a 22-year high of 4.75%, blaming stronger-than-expected growth and a tight labour market for stubbornly high inflation.

Inflation was 3.4% in May, the latest data show, down from a peak of 8.1% last year, but the BoC has said it will take until the end of next year to get it all the way down to its 2% target.

Money markets expect the central bank to tighten further, possibly as soon as at a policy decision next Wednesday. Most economists surveyed by Reuters are convinced there will be another rate hike next week.

Canada’s federal and provincial governments have been urging the parties to restart talks after they broke down on Tuesday.

“Industry, labour, and all levels of government want to see goods moving through our BC ports,” Canada’s minister of labour, Seamus O’Regan, said in a statement posted on Twitter on Thursday.

O’Regan said he spoke with Acting U.S. Secretary of Labor Julie Su on Thursday afternoon. Around two-thirds of Canada’s total global trade is with the U.S., according to the federal government website.

The Canadian Manufacturers & Exporters (CM&E) industry body said the strike is disrupting C$500 million in trade every day.

“This is a serious disruption that will have some noticeable consequences if it drags on,” Robert Kavcic, senior economist at BMO Capital Markets, said in a note.

($1 = 1.3360 Canadian dollars)

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