Price or quantity effect? The impacts of the pandemic on Canadian trade

Colin Scarffe
January 2022

Key points

1. As of October 2021, the value of Canada’s merchandise exports were 13% above the 2019 average (pre-pandemic) level. However, this is the product of two offsetting trends:
   • The first is that export prices surged in 2021 and are 21% above their pre-pandemic level.
   • The second is that export quantities sagged in 2021 and are 6.2% below their pre-pandemic level.
   • This narrative only emerged in 2021, after prices and quantities had recovered from the pandemic dip.
2. As of October 2021, Canadian merchandise imports are 5.7% above pre-pandemic levels and are a muted version of the export side. Import prices are 5.4% above their pre-pandemic level while import quantities are 0.2% above their pre-pandemic level.
3. Canadian merchandise export prices move nearly one-for-one with Canadian industrial prices—both industrial prices (excluding energy) and export prices (excluding oil) have increased close to 15% year-over-year in October 2021.
4. In October, Canadian merchandise imports (excluding oil) had increased a more modest 5% year-over-year while the price of consumer goods (excluding energy) increased 3% year-over-year. While import prices are correlated with consumer and industrial prices, the correlation is somewhat weak suggesting that other domestic factors may be more important than import prices.
5. As export prices have risen faster than import prices, Canada has seen its terms of trade appreciate. In general, this rising terms of trade indicates the price changes have been a net-benefit to the Canadian economy as Canadian exporters are receiving greater returns for exports relative to the increased costs to importers.

1. Introduction

Largely due to the COVID-19 pandemic, Canada’s merchandise trade —and merchandise trade around the world—has been volatile in the last two years. Business closures to control the spread of the virus, shifts in spending patterns, volatile commodity prices, and lingering supply chain issues have all contributed to the disruptions in trade. Between February 2020 and May 2020, Canadian imports and exports both fell 29%. As pandemic restrictions gradually eased, monetary policy become more accommodating, fiscal supports materialized, and Canadians transitioned to working online, Canadian trade rebounded. As of October 2021, Canadian merchandise imports were 5.7% above 2019 average (pre-pandemic) levels, while Canadian merchandise exports were 13% above pre-pandemic levels. However, the fall and subsequent recovery of Canadian trade is more complicated than the simple narrative that things have returned to normal. In general, two components determine the value of Canadian trade: the quantity of goods traded and the price paid for those goods. Examining the quantity and price changes over the last two years provides more nuance on what actually changed during the pandemic, and contributes to a clearer narrative of the emerging trends in merchandise trade.

2. Data and methodology

The data in this paper covers only merchandise trade and comes from Statistics Canada. Table 12-10-0121-01 provides monthly Canadian trade values by the North American Product Classification System (NAPCS) commodities (101 commodities at the most detailed level).^{Footnote 1} Table 12-10-0128-01 provides monthly price and volume (hereafter quantity) information for Canadian merchandise trade by NAPCS commodities.^{Footnote 2} There are two choices to make with the data: whether to seasonally adjust the data, and whether to use the data on a Customs or Balance of Payments (BoP) basis. Given the examination period is measured in months rather than years, seasonally adjusted data is the natural choice; balance of payments data was chosen as it is more commonly reported by Statistics Canada. A manual adjustment was made to the quantity and price data to adjust the base year to 2019. Details of the adjustment, as well as details of other index number calculations can be found in the second appendix. The latest data available at the time of writing was October 2021.

For many series, a counter-factual level is used for comparison. There are several ways to generate a counter-factual; the first would be to use a benchmark level, such as the 2019 average as the “normal” level. One problem is that this simple benchmark ignores the fact that trade generally grows over time, and thus what is “normal” for the end of 2021 should be above the 2019 average. The second option is to use a previous trend to make a linear extrapolation for 2020 and 2021. A third option is to use univariate ARIMA^{Footnote 3} estimation to generate a prediction for 2020 and 2021. While ARIMA estimation isn’t ex-ante constrained to be linear, in this paper all of the ARIMA estimates produced a linear trend—thus the linear extrapolations and the ARIMA estimates are similar. Both the 2019 average level and the ARIMA estimation will be used as benchmarks in this report. Details of the specific ARIMA procedure can be found in section 9, the third appendix.

3. Exports

The value of Canadian merchandise exports decreased close to 34% between February and April 2020; however, the trough was short-lived with exports recovering half of their value by June 2020 and were above 2019 average levels by January 2021. As seen in figure 1 below, exports have seen steady growth regardless of the starting point. Even if no leniency is granted for the pandemic, Canadian merchandise exports grew close to 15% between October 2019 and October 2021. This is equivalent to an annual growth rate of 7.2% which compares favourably to an annual growth rate of exports between 2010 and 2019 of only 4.3%.

Figure 1: The monthly value of Canadian merchandise exports

Text version

Date	Actual	2019 average
Jan-2018	46068.9	49630.3
Feb-2018	46806.1	49630.3
Mar-2018	48208.0	49630.3
Apr-2018	49008.9	49630.3
May-2018	49014.3	49630.3
Jun-2018	51684.6	49630.3
Jul-2018	51481.6	49630.3
Aug-2018	50585.9	49630.3
Sep-2018	50664.2	49630.3
Oct-2018	50226.3	49630.3
Nov-2018	47003.3	49630.3
Dec-2018	45412.5	49630.3
Jan-2019	47989.6	49630.3
Feb-2019	48254.6	49630.3
Mar-2019	50298.6	49630.3
Apr-2019	50852.1	49630.3
May-2019	52341.9	49630.3
Jun-2019	49752.0	49630.3
Jul-2019	49431.1	49630.3
Aug-2019	50070.9	49630.3
Sep-2019	49530.4	49630.3
Oct-2019	48881.3	49630.3
Nov-2019	48837.7	49630.3
Dec-2019	49323.5	49630.3
Jan-2020	46883.4	49630.3
Feb-2020	47381.1	49630.3
Mar-2020	43944.3	49630.3
Apr-2020	31639.9	49630.3
May-2020	34227.4	49630.3
Jun-2020	41326.9	49630.3
Jul-2020	45248.6	49630.3
Aug-2020	45024.0	49630.3
Sep-2020	45902.0	49630.3
Oct-2020	46423.8	49630.3
Nov-2020	46834.7	49630.3
Dec-2020	47346.3	49630.3
Jan-2021	51292.2	49630.3
Feb-2021	50060.8	49630.3
Mar-2021	50557.1	49630.3
Apr-2021	50274.3	49630.3
May-2021	49528.4	49630.3
Jun-2021	53268.1	49630.3
Jul-2021	53821.0	49630.3
Aug-2021	53947.5	49630.3
Sep-2021	52801.6	49630.3
Oct-2021	56183.1	49630.3
Nov-2021
Dec-2021

However, examining the export value by itself does not tell the full story. Figure 2 decomposes the change in exports (from the 2019 average level) into changes in export quantity and changes in export prices. Figure 2 shows that all of the export growth in 2021 has been due to increasing prices, while the quantity of exported goods has actually acted as a drag on growth.

Figure 2: Price and quantity contribution to the growth of merchandise export value compared to 2019^{Footnote 4}

Text version

Date	Value	Prices	Quantities
Jan-2019	-0.035	-0.029	-0.006
Feb-2019	-0.029	0.005	-0.035
Mar-2019	0.015	0.025	-0.010
Apr-2019	0.025	0.030	-0.005
May-2019	0.053	0.021	0.032
Jun-2019	0.004	-0.012	0.016
Jul-2019	-0.001	-0.017	0.015
Aug-2019	0.006	-0.013	0.019
Sep-2019	-0.006	-0.005	-0.002
Oct-2019	-0.019	-0.007	-0.011
Nov-2019	-0.019	-0.003	-0.016
Dec-2019	-0.008	-0.010	0.002
Jan-2020	-0.059	-0.020	-0.039
Feb-2020	-0.047	-0.047	0.000
Mar-2020	-0.120	-0.082	-0.038
Apr-2020	-0.450	-0.180	-0.270
May-2020	-0.373	-0.126	-0.247
Jun-2020	-0.182	-0.057	-0.124
Jul-2020	-0.087	-0.038	-0.049
Aug-2020	-0.100	-0.026	-0.074
Sep-2020	-0.084	-0.028	-0.056
Oct-2020	-0.070	-0.013	-0.056
Nov-2020	-0.060	-0.014	-0.046
Dec-2020	-0.048	0.002	-0.050
Jan-2021	0.031	0.033	-0.002
Feb-2021	0.006	0.070	-0.064
Mar-2021	0.017	0.074	-0.057
Apr-2021	0.011	0.098	-0.087
May-2021	-0.002	0.113	-0.116
Jun-2021	0.071	0.143	-0.072
Jul-2021	0.081	0.150	-0.069
Aug-2021	0.084	0.141	-0.058
Sep-2021	0.061	0.161	-0.100
Oct-2021	0.127	0.195	-0.068
Nov-2021	0.165	0.199	-0.034

Of note is that quantities were above the 2019 average level in January 2021. While the recent sluggishness of quantities could still be pandemic driven, this is a new trend which is distinct from the initial drop in April 2020. Had quantities stayed below 2019 levels the entire time, the narrative could be that they’re slow to recover, or perhaps Canada has lost that capacity entirely. However, given quantities did exceed the 2019 level, neither of these descriptions fit the data.

In order to investigate the trends further, the price and quantity growth is decomposed into the 101 NAPCS components. By decomposing the aggregates into the components, its possible to infer whether the observed trend is the result of a single component—and therefore not reflective of the broader economy—or whether it is broad based—and therefore reflective of the economic conditions. Table 3 & 4 in the first appendix have the 10 components that have the highest contribution to growth—both negative and positive—for export prices and quantities. Table 1 has key summary statistics for the individual components for various periods throughout the pandemic.

Table 1: Summary statistics of components throughout the pandemic^{Footnote 5}

The dynamics in export quantities and prices since 2019 can be described as follows:

Pandemic decline (2019 average – May 2020):

• A broad-based decline in export quantities. Autos and parts played a large role, but 77 of the 99 products declined. No product was solely responsible for the decline in quantity.
• A decline in export prices that was entirely due to a decline in the price of oil. Excluding oil, export prices were flat.

Pandemic rebound (May 2020 – January 2021):

• A broad-based increase in export quantities. Crude oil and autos/auto-parts were large contributors to the recovery, but combined only contributed a little over half to the total increase in export quantities.
• A broad-based increase in export prices. Crude oil was responsible for more than half of the contribution in prices, but export prices excluding oil were also up significantly.

2021 (January 2021 – October 2021):

• Broad based decrease in quantities. Two-thirds of exports had a lower export quantity compared to January. Cars, trucks, tires, and parts contributed only one-sixth to the decline.
• Broad based increase in prices.

Total pandemic period (2019 average – October 2021):

• A broad-based decline in quantities. Autos and parts plays a significant role, but only contributes about a third to the total decline
• A broad-based increase in export prices, the magnitude of which is the largest (or at least matches the largest) on record.
• Oil prices had a large decrease (-75%) and then a large increase (+400%), thus largely canceling out the change. However, this result in a still notable 31% increase.

To summarize the 2021 period in words, there is no single export, or group of exports, that is responsible for the price increase or the quantity decrease. The increase in prices is reflective of the fact that prices around the world for most goods have increased, and Canadian exporters are selling their goods for higher prices. Likewise, no single export was responsible for the lower export quantity. Canadian exporters are struggling to export their goods. This isn’t to say that Canadian exporters have become lousy at exporting; rather, there are supply constraints that are limiting Canadian businesses. The fact that both the higher prices and lower quantities are broad based means that no single cause—such as a semi-conductor shortage—can explain these events; higher prices and lower quantities are simply a feature of the broader economic conditions.

The final piece of the analysis on the export side is to examine how the current level of the data compares to the counter-factual estimates. The reason why a comparison to counter-factual is necessary is that it provides context for the above facts. There’s no questioning that prices have driven export growth while quantities have held back export growth, but if export prices are high while quantities are more normal, then having a lower export quantity would not be a significant issue. Conversely, if quantities are low while prices are normal, this changes the narrative as perhaps the shock isn’t as extensive as thought. Similar to above, before examining prices and quantities, figure 3 has the value of exports compared to its counter-factual.

Figure 3: The value of exports and the counter-factual^{Footnote 7}

Text version

Date	Actual	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	32347.0
Feb-2010	33103.1
Mar-2010	32714.8
Apr-2010	32888.5
May-2010	33749.6
Jun-2010	33387.2
Jul-2010	33044.1
Aug-2010	33945.2
Sep-2010	33280.8
Oct-2010	34208.7
Nov-2010	34743.7
Dec-2010	36554.0
Jan-2011	37537.7
Feb-2011	35660.6
Mar-2011	36331.9
Apr-2011	36806.3
May-2011	36652.1
Jun-2011	36308.3
Jul-2011	37664.6
Aug-2011	38730.1
Sep-2011	39881.5
Oct-2011	39087.2
Nov-2011	40149.1
Dec-2011	41803.1
Jan-2012	39670.6
Feb-2012	39609.3
Mar-2012	38336.5
Apr-2012	38587.5
May-2012	38523.7
Jun-2012	38187.8
Jul-2012	37517.6
Aug-2012	37988.8
Sep-2012	37852.8
Oct-2012	38287.8
Nov-2012	38471.9
Dec-2012	38476.9
Jan-2013	38594.1
Feb-2013	39491.2
Mar-2013	40031.8
Apr-2013	40565.4
May-2013	39631.3
Jun-2013	39535.4
Jul-2013	38657.9
Aug-2013	40671.8
Sep-2013	41044.8
Oct-2013	40318.5
Nov-2013	40155.0
Dec-2013	40527.5
Jan-2014	40424.8
Feb-2014	43191.7
Mar-2014	44432.5
Apr-2014	43696.7
May-2014	45246.7
Jun-2014	45124.9
Jul-2014	45317.8
Aug-2014	44760.4
Sep-2014	44952.0
Oct-2014	45009.7
Nov-2014	43634.1
Dec-2014	43542.3
Jan-2015	42271.9
Feb-2015	42834.5
Mar-2015	43147.5
Apr-2015	42892.2
May-2015	42493.5
Jun-2015	44835.4
Jul-2015	45566.1
Aug-2015	44755.3
Sep-2015	44345.5
Oct-2015	43348.8
Nov-2015	43055.7
Dec-2015	44499.7
Jan-2016	45518.4
Feb-2016	43349.7
Mar-2016	41507.4
Apr-2016	41552.4
May-2016	40944.8
Jun-2016	41120.5
Jul-2016	43174.4
Aug-2016	44151.3
Sep-2016	44001.0
Oct-2016	44407.9
Nov-2016	46456.4
Dec-2016	46116.7
Jan-2017	46977.1
Feb-2017	46110.4
Mar-2017	46769.3
Apr-2017	47390.3
May-2017	47988.4
Jun-2017	45712.0
Jul-2017	43807.0
Aug-2017	43560.1
Sep-2017	43763.8
Oct-2017	44638.0
Nov-2017	46728.9
Dec-2017	47079.4
Jan-2018	46068.9
Feb-2018	46806.1
Mar-2018	48208.0
Apr-2018	49008.9
May-2018	49014.3
Jun-2018	51684.6
Jul-2018	51481.6
Aug-2018	50585.9
Sep-2018	50664.2
Oct-2018	50226.3
Nov-2018	47003.3
Dec-2018	45412.5
Jan-2019	47989.6
Feb-2019	48254.6
Mar-2019	50298.6
Apr-2019	50852.1
May-2019	52341.9
Jun-2019	49752.0
Jul-2019	49431.1
Aug-2019	50070.9
Sep-2019	49530.4
Oct-2019	48881.3
Nov-2019	48837.7
Dec-2019	49323.5
Jan-2020	46883.4	49498.67	47473.3	51610.46
Feb-2020	47381.1	49674.47	46824.54	52697.85
Mar-2020	43944.3	49850.89	46370.98	53591.94
Apr-2020	31639.9	50027.93	46017.63	54387.72
May-2020	34227.4	50205.6	45727.84	55121.84
Jun-2020	41326.9	50383.91	45482.88	55813.05
Jul-2020	45248.6	50562.85	45271.68	56472.42
Aug-2020	45024.0	50742.42	45087.05	57107.16
Sep-2020	45902.0	50922.63	44924	57722.25
Oct-2020	46423.8	51103.48	44778.93	58321.32
Nov-2020	46834.7	51284.98	44649.12	58907.08
Dec-2020	47346.3	51467.12	44532.46	59481.65
Jan-2021	51226.2	51649.9	44427.3	60046.7
Feb-2021	49969.1	51833.34	44332.27	60603.59
Mar-2021	50530.2	52017.42	44246.29	61153.42
Apr-2021	50221.1	52202.16	44168.43	61697.14
May-2021	49562.7	52387.56	44097.9	62235.52
Jun-2021	53332.8	52573.61	44034.06	62769.24
Jul-2021	53854.4	52760.33	43976.33	63298.87
Aug-2021	54011.6	52947.71	43924.22	63824.91
Sep-2021	52782.6	53135.75	43877.3	64347.8
Oct-2021	56420	53324.46	43835.19	64867.93
Nov-2021		53513.84	43797.56	65385.64
Dec-2021		53703.9	43764.1	65901.24

This simple counter-factual does not attempt to provide an accurate forecast—perhaps Canadian exports should be much higher or much lower than they are currently, given the economic conditions. A better forecast would require a more powerful model which is out of the scope of this work. Instead, the counter-factual can be interpreted as Canadian exports being approximately back to (or above) the same growth path they were prior to the pandemic. Exports surpassed the counter-factual (the trend growth rate between January 2010 and December 2019) by June 2021. As of October 2021, exports were $2.8 billion (or roughly 5%) above the counter-factual estimate.^{Footnote 8} Next, figure 4 has the export quantity and export prices compared to their respective counter-factuals.

Figure 4: Monthly quantity, price, and counter-factual estimates for exports

Text version

Date	Quantities	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	77.34
Feb-2010	78.52
Mar-2010	79.42
Apr-2010	81.01
May-2010	81.04
Jun-2010	80.86
Jul-2010	80.51
Aug-2010	81.96
Sep-2010	80.52
Oct-2010	82.36
Nov-2010	82.48
Dec-2010	85.77
Jan-2011	82.99
Feb-2011	79.93
Mar-2011	80.15
Apr-2011	79.60
May-2011	79.93
Jun-2011	78.52
Jul-2011	84.93
Aug-2011	85.67
Sep-2011	85.93
Oct-2011	84.24
Nov-2011	84.99
Dec-2011	89.53
Jan-2012	86.42
Feb-2012	85.62
Mar-2012	83.31
Apr-2012	84.90
May-2012	85.17
Jun-2012	84.56
Jul-2012	84.15
Aug-2012	84.80
Sep-2012	83.91
Oct-2012	83.21
Nov-2012	84.40
Dec-2012	83.96
Jan-2013	84.02
Feb-2013	85.49
Mar-2013	85.98
Apr-2013	87.72
May-2013	86.53
Jun-2013	86.59
Jul-2013	82.99
Aug-2013	86.34
Sep-2013	87.85
Oct-2013	87.00
Nov-2013	87.63
Dec-2013	87.05
Jan-2014	83.31
Feb-2014	86.67
Mar-2014	89.23
Apr-2014	90.17
May-2014	93.60
Jun-2014	93.64
Jul-2014	94.69
Aug-2014	93.57
Sep-2014	94.13
Oct-2014	95.26
Nov-2014	92.53
Dec-2014	95.43
Jan-2015	92.92
Feb-2015	92.26
Mar-2015	93.85
Apr-2015	93.47
May-2015	92.48
Jun-2015	96.53
Jul-2015	97.10
Aug-2015	96.10
Sep-2015	96.00
Oct-2015	94.29
Nov-2015	94.00
Dec-2015	97.69
Jan-2016	99.75
Feb-2016	98.19
Mar-2016	94.95
Apr-2016	94.72
May-2016	91.73
Jun-2016	91.24
Jul-2016	94.07
Aug-2016	97.07
Sep-2016	95.38
Oct-2016	94.57
Nov-2016	98.20
Dec-2016	96.54
Jan-2017	97.75
Feb-2017	96.14
Mar-2017	97.23
Apr-2017	97.96
May-2017	98.81
Jun-2017	96.25
Jul-2017	95.23
Aug-2017	93.95
Sep-2017	94.79
Oct-2017	95.06
Nov-2017	97.00
Dec-2017	96.93
Jan-2018	95.21
Feb-2018	97.16
Mar-2018	98.79
Apr-2018	99.67
May-2018	97.77
Jun-2018	101.29
Jul-2018	100.70
Aug-2018	99.62
Sep-2018	100.67
Oct-2018	100.26
Nov-2018	100.09
Dec-2018	98.90
Jan-2019	99.35
Feb-2019	96.59
Mar-2019	98.97
Apr-2019	99.46
May-2019	103.26
Jun-2019	101.57
Jul-2019	101.55
Aug-2019	101.90
Sep-2019	99.83
Oct-2019	98.88
Nov-2019	98.41
Dec-2019	100.23
Jan-2020	96.20	101.046	97.76703	104.4349
Feb-2020	100.04	101.5289	97.48892	105.7363
Mar-2020	96.25	101.6575	97.291	106.22
Apr-2020	76.35	101.866	97.4009	106.5358
May-2020	78.08	102.0749	97.51273	106.8505
Jun-2020	88.31	102.2843	97.62639	107.1643
Jul-2020	95.21	102.494	97.74178	107.4773
Aug-2020	92.87	102.7042	97.85884	107.7895
Sep-2020	94.59	102.9148	97.97748	108.101
Oct-2020	94.51	103.1259	98.09765	108.4119
Nov-2020	95.52	103.3374	98.21927	108.7223
Dec-2020	95.16	103.5493	98.34229	109.0321
Jan-2021	99.80	103.7617	98.46665	109.3415
Feb-2021	93.80	103.9745	98.59232	109.6505
Mar-2021	94.42	104.1877	98.71924	109.9592
Apr-2021	91.67	104.4014	98.84738	110.2675
May-2021	89.09	104.6155	98.97669	110.5756
Jun-2021	93.01	104.8301	99.10714	110.8835
Jul-2021	93.34	105.0451	99.2387	111.1911
Aug-2021	94.40	105.2605	99.37133	111.4987
Sep-2021	90.46	105.4764	99.50501	111.8061
Oct-2021	93.39648	105.6927	99.6397	112.1134
Nov-2021		105.9094	99.77539	112.4206
Dec-2021		106.1266	99.91205	112.7278

Text version

Date	Prices	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	84.22
Feb-2010	84.90
Mar-2010	82.94
Apr-2010	81.74
May-2010	83.85
Jun-2010	83.13
Jul-2010	82,62
Aug-2010	83.40
Sep-2010	83.22
Oct-2010	83.61
Nov-2010	84.83
Dec-2010	85.81
Jan-2011	91.08
Feb-2011	89.83
Mar-2011	91.25
Apr-2011	93.09
May-2011	92.32
Jun-2011	93.09
Jul-2011	89.26
Aug-2011	90.96
Sep-2011	93.43
Oct-2011	93.43
Nov-2011	95.04
Dec-2011	94.01
Jan-2012	92.42
Feb-2012	93.16
Mar-2012	92.63
Apr-2012	91.51
May-2012	91.08
Jun-2012	90.93
Jul-2012	89.76
Aug-2012	90.20
Sep-2012	90.83
Oct-2012	92.64
Nov-2012	91.75
Dec-2012	92.25
Jan-2013	92.47
Feb-2013	93.00
Mar-2013	93.74
Apr-2013	93.11
May-2013	92.19
Jun-2013	91.91
Jul-2013	93.78
Aug-2013	94.85
Sep-2013	94.08
Oct-2013	93.33
Nov-2013	92.25
Dec-2013	93.74
Jan-2014	97.68
Feb-2014	100.32
Mar-2014	100.25
Apr-2014	97.60
May-2014	97.33
Jun-2014	96.98
Jul-2014	96.35
Aug-2014	96.31
Sep-2014	96.06
Oct-2014	95.04
Nov-2014	94.95
Dec-2014	91.89
Jan-2015	91.55
Feb-2015	93.50
Mar-2015	92.52
Apr-2015	92.30
May-2015	92.72
Jun-2015	93.65
Jul-2015	94.57
Aug-2015	93.66
Sep-2015	92.83
Oct-2015	92.53
Nov-2015	92.21
Dec-2015	91.71
Jan-2016	91.91
Feb-2016	88.90
Mar-2016	88.03
Apr-2016	88.33
May-2016	89.86
Jun-2016	90.75
Jul-2016	92.40
Aug-2016	91.60
Sep-2016	92.89
Oct-2016	94.57
Nov-2016	95.29
Dec-2016	96.18
Jan-2017	96.77
Feb-2017	96.60
Mar-2017	96.84
Apr-2017	97.38
May-2017	97.78
Jun-2017	95.64
Jul-2017	92.61
Aug-2017	93.38
Sep-2017	92.94
Oct-2017	94.55
Nov-2017	96.99
Dec-2017	97.81
Jan-2018	97.43
Feb-2018	96.98
Mar-2018	98.27
Apr-2018	98.99
May-2018	100.94
Jun-2018	102.74
Jul-2018	102.93
Aug-2018	102.15
Sep-2018	101.31
Oct-2018	100.87
Nov-2018	94.54
Dec-2018	92.45
Jan-2019	97.18
Feb-2019	100.53
Mar-2019	102.53
Apr-2019	103.06
May-2019	102.13
Jun-2019	98.85
Jul-2019	98.35
Aug-2019	98.75
Sep-2019	99.53
Oct-2019	99.28
Nov-2019	99.74
Dec-2019	99.01
Jan-2020	98.03	98.66488	96.01716	101.3856
Feb-2020	95.36	99.06011	94.87569	103.4291
Mar-2020	92.12	99.046	93.97394	104.3918
Apr-2020	83.55	99.25964	93.33769	105.5573
May-2020	88.20	99.34704	92.73922	106.4257
Jun-2020	94.44	99.50486	92.25211	107.3278
Jul-2020	96.28	99.62384	91.79559	108.1197
Aug-2020	97.45	99.76467	91.39467	108.9012
Sep-2020	97.20	99.89363	91.02036	109.6319
Oct-2020	98.68	100.0295	90.67888	110.3443
Nov-2020	98.57	100.1618	90.35912	111.0279
Dec-2020	100.16	100.2963	90.06159	111.6941
Jan-2021	103.32	100.4299	89.78149	112.3412
Feb-2021	107.24	100.5643	89.51789	112.9737
Mar-2021	107.73	100.6985	89.26837	113.5921
Apr-2021	110.29	100.8331	89.03184	114.1985
May-2021	111.99	100.9677	88.80687	114.7938
Jun-2021	115.42	101.1026	88.59252	115.3793
Jul-2021	116.16	101.2377	88.38783	115.9556
Aug-2021	115.18	101.3729	88.19204	116.5237
Sep-2021	117.48	101.5083	88.00446	117.0843
Oct-2021	121.5766	101.6439	87.8245	117.6379
Nov-2021		101.7797	87.6516	118.1851
Dec-2021		101.9157	87.48531	118.7263

Perhaps unsurprising given the decomposition in figure 2, the value of exports sitting in the middle of the “normal” range is the product of two offsetting abnormal occurrences. Export prices are 18.4% above the counter-factual trend, while export quantities are 11.2% below the counter-factual trend. Both of these events fit into the common narrative emerging in the aftermath of the COVID-19 pandemic. A shift towards consuming more goods causes an increase in demand, putting upward pressure on prices, while constrained supply keeps actual quantities traded down. The result ends up being a close to a wash in terms of value, but the composition is higher prices paid for goods and lower quantities exported.

One final point on exports: reinforcing the narrative from the decomposition in figure 2, these trends have emerged entirely in 2021. In January 2021, export prices were right in line with the point estimate and just slightly above 100—the 2019 average level. Likewise, quantities were below the point estimate, but were above the lower bound of the confidence interval and slightly above 100. Thus for Canadian merchandise exports, the run-up in prices, and the sagging of quantities is a pandemic narrative that is disparate from the initial drop and is a distinct trend for 2021.

4. Imports

Throughout the pandemic, the import side of Canadian merchandise trade has exhibited similar behaviour as the export side; however, it is more muted and the trends in value, prices, and quantities are less distinct. Both merchandise exports and imports fell 29% between February and May 2020, with April being the trough for exports and May being the trough for imports. Figure 5 has the monthly value of Canadian merchandise imports and the 2019 average.

Figure 5: The monthly value of Canadian merchandise imports

Text version

Date	Actual	2019 average
Jan-2018	47927.0	51164.4
Feb-2018	48910.1	51164.4
Mar-2018	51677.2	51164.4
Apr-2018	50496.3	51164.4
May-2018	51479.9	51164.4
Jun-2018	51933.3	51164.4
Jul-2018	51547.0	51164.4
Aug-2018	51086.7	51164.4
Sep-2018	51191.1	51164.4
Oct-2018	50427.9	51164.4
Nov-2018	50126.3	51164.4
Dec-2018	51167.5	51164.4
Jan-2019	51934.4	51164.4
Feb-2019	51430.0	51164.4
Mar-2019	52688.5	51164.4
Apr-2019	51821.0	51164.4
May-2019	52622.6	51164.4
Jun-2019	51035.6	51164.4
Jul-2019	50972.3	51164.4
Aug-2019	51703.5	51164.4
Sep-2019	50404.5	51164.4
Oct-2019	50395.8	51164.4
Nov-2019	49475.2	51164.4
Dec-2019	49489.3	51164.4
Jan-2020	49744.1	51164.4
Feb-2020	50191.5	51164.4
Mar-2020	48579.8	51164.4
Apr-2020	37139.5	51164.4
May-2020	36007.0	51164.4
Jun-2020	43437.0	51164.4
Jul-2020	48482.9	51164.4
Aug-2020	48557.3	51164.4
Sep-2020	49654.0	51164.4
Oct-2020	50544.5	51164.4
Nov-2020	50236.2	51164.4
Dec-2020	49433.9	51164.4
Jan-2021	50073.5	51164.4
Feb-2021	48975.8	51164.4
Mar-2021	51991.5	51164.4
Apr-2021	50121.2	51164.4
May-2021	51537.8	51164.4
Jun-2021	51388.8	51164.4
Jul-2021	53623.1	51164.4
Aug-2021	53079.3	51164.4
Sep-2021	51610.8	51164.4
Oct-2021	54156.2	51164.4
Nov-2021		51164.4
Dec-2021		51164.4

Next, figure 6 below decomposes the change in imports into price and quantity growth. There are features of figure 6 that are similar to the export decomposition in figure 2—namely the big dip at the beginning of the pandemic and the recent increase in import prices. However, this does not mean that imports have had the same narrative as exports. Prices played a smaller role in the initial decline for imports (albeit on the export side the price decline was entirely due to oil) and accordingly quantities played a larger role on the import side. The second difference is that as late as May 2021, import prices were below the 2019 average level. This is noticeably different from the export side where prices have been above the 2019 average level since December 2020—6 months earlier than imports. Lastly, import quantities were slightly above the 2019 average level in October 2021—albeit essentially no different from the pre-pandemic level. This still differs markedly from the export side where quantities were a significant drag on growth.

Figure 6: Price and quantity contribution to the growth of import value compared to 2019

Text version

Date	Value	Prices	Quantities
Jan-2018	-0.065	-0.048	-0.019
Feb-2018	-0.045	-0.038	-0.008
Mar-2018	0.010	-0.025	0.035
Apr-2018	-0.013	-0.027	0.013
May-2018	0.006	-0.023	0.028
Jun-2018	0.015	0.000	0.014
Jul-2018	0.007	0.006	0.001
Aug-2018	-0.002	0.007	-0.010
Sep-2018	0.001	0.009	-0.009
Oct-2018	-0.014	-0.001	-0.014
Nov-2018	-0.020	0.004	-0.025
Dec-2018	0.000	0.015	-0.016
Jan-2019	0.015	0.010	0.002
Feb-2019	0.005	-0.005	0.011
Mar-2019	0.029	0.004	0.026
Apr-2019	0.013	0.010	0.004
May-2019	0.028	0.008	0.019
Jun-2019	-0.003	0.002	-0.009
Jul-2019	-0.004	-0.009	0.002
Aug-2019	0.010	-0.002	0.012
Sep-2019	-0.015	-0.005	-0.011
Oct-2019	-0.015	-0.005	-0.012
Nov-2019	-0.034	-0.012	-0.023
Dec-2019	-0.033	-0.010	-0.023
Jan-2020	-0.028	-0.002	-0.027
Feb-2020	-0.019	0.000	-0.016
Mar-2020	-0.052	0.023	-0.073
Apr-2020	-0.320	-0.020	-0.301
May-2020	-0.351	-0.010	-0.346
Jun-2020	-0.164	-0.028	-0.141
Jul-2020	-0.054	-0.008	-0.049
Aug-2020	-0.052	-0.013	-0.039
Sep-2020	-0.030	-0.008	-0.022
Oct-2020	-0.012	-0.004	-0.009
Nov-2020	-0.018	-0.011	-0.008
Dec-2020	-0.034	-0.020	-0.014
Jan-2021	-0.022	-0.013	-0.009
Feb-2021	-0.044	-0.007	-0.037
Mar-2021	0.016	-0.020	0.035
Apr-2021	-0.021	-0.001	-0.020
May-2021	0.007	-0.010	0.016
Jun-2021	0.004	0.006	-0.002
Jul-2021	0.047	0.034	0.012
Aug-2021	0.037	0.047	-0.011
Sep-2021	0.009	0.061	-0.053
Oct-2021	0.057	0.055	0.001
Nov-2021	0.080	0.073	0.006

Below, table 2 has the summary statistics for the individual components throughout the pandemic. For consistency, the same time periods are used, but based off of the contributions to import growth in figure 6, their isn’t a clear change in trend that emerges after January 2021.

Table 2: Summary statistics of components throughout the pandemic

In general, the import price and quantity contributions to growth have been broad-based throughout the pandemic. During the pandemic decline and subsequent recovery, import price contributions were slightly concentrated, but given the relatively small change in prices, this number is less important to the narrative. One period to note is that the decline in quantities in August and September 2021 (the two purple bars below 0 towards the right hand side in figure 6) was entirely due to a decline in autos and auto-parts. Otherwise, all other movements have been largely broad-based.

Next, figure 7 has the three series—the value, quantities, and prices—plotted with their respective counter-factuals. One aspect that these figures show is that it is clear that prices are above trend and quantities are below trend—albeit only slightly. Thus, while the path taken to get to October 2021 is different than exports, imports has the similar—though milder—narrative to the export side that prices are up while quantities are down.

Figure 7: The value, quantity, and price of imports and their counter-factuals

Text version

Date	Actual	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	31953.0
Feb-2010	33041.9
Mar-2010	33970.6
Apr-2010	32778.9
May-2010	34609.8
Jun-2010	34783.4
Jul-2010	35115.1
Aug-2010	35716.7
Sep-2010	35614.6
Oct-2010	35391.2
Nov-2010	35256.5
Dec-2010	35438.3
Jan-2011	36793.6
Feb-2011	35709.1
Mar-2011	37331.4
Apr-2011	37046.0
May-2011	37738.1
Jun-2011	37422.8
Jul-2011	37515.8
Aug-2011	38521.3
Sep-2011	38783.7
Oct-2011	39927.3
Nov-2011	39573.8
Dec-2011	39682.0
Jan-2012	39705.3
Feb-2012	39610.3
Mar-2012	39498.6
Apr-2012	39328.4
May-2012	39910.3
Jun-2012	40525.6
Jul-2012	40559.6
Aug-2012	39065.1
Sep-2012	38903.9
Oct-2012	38667.1
Nov-2012	40145.2
Dec-2012	38880.9
Jan-2013	39476.7
Feb-2013	40181.6
Mar-2013	40214.9
Apr-2013	40718.5
May-2013	40451.7
Jun-2013	39979.4
Jul-2013	40314.4
Aug-2013	41469.4
Sep-2013	41079.9
Oct-2013	40690.2
Nov-2013	41422.6
Dec-2013	41370.8
Jan-2014	41301.2
Feb-2014	42617.2
Mar-2014	42909.2
Apr-2014	43374.2
May-2014	44679.2
Jun-2014	43496.6
Jul-2014	43622.9
Aug-2014	43837.6
Sep-2014	44366.5
Oct-2014	45201.0
Nov-2014	44430.3
Dec-2014	44824.8
Jan-2015	44695.3
Feb-2015	44556.4
Mar-2015	46561.0
Apr-2015	45273.1
May-2015	45144.3
Jun-2015	45253.0
Jul-2015	46025.6
Aug-2015	46363.1
Sep-2015	46353.1
Oct-2015	45762.2
Nov-2015	46205.6
Dec-2015	46489.2
Jan-2016	46825.3
Feb-2016	46555.0
Mar-2016	44744.3
Apr-2016	44638.7
May-2016	44529.7
Jun-2016	44896.4
Jul-2016	44611.1
Aug-2016	45670.0
Sep-2016	48036.7
Oct-2016	45793.6
Nov-2016	45383.2
Dec-2016	45665.2
Jan-2017	47072.3
Feb-2017	47370.9
Mar-2017	47440.7
Apr-2017	48440.8
May-2017	49569.3
Jun-2017	49270.4
Jul-2017	46754.8
Aug-2017	46485.6
Sep-2017	46931.0
Oct-2017	46322.4
Nov-2017	49354.5
Dec-2017	50011.6
Jan-2018	47927.0
Feb-2018	48910.1
Mar-2018	51677.2
Apr-2018	50496.3
May-2018	51479.9
Jun-2018	51933.3
Jul-2018	51547.0
Aug-2018	51086.7
Sep-2018	51191.1
Oct-2018	50427.9
Nov-2018	50126.3
Dec-2018	51167.5
Jan-2019	51934.4
Feb-2019	51430.0
Mar-2019	52688.5
Apr-2019	51821.0
May-2019	52622.6
Jun-2019	51035.6
Jul-2019	50972.3
Aug-2019	51703.5
Sep-2019	50404.5
Oct-2019	50395.8
Nov-2019	49475.2
Dec-2019	49489.3
Jan-2020	49744.1	50018.23	48341.44	51753.18
Feb-2020	50191.5	50201.52	48211.48	52273.7
Mar-2020	48579.8	50385.48	48123.7	52753.56
Apr-2020	37139.5	50570.12	48064.32	53206.55
May-2020	36007.0	50755.43	48025.72	53640.3
Jun-2020	43437.0	50941.43	48003.18	54059.52
Jul-2020	48482.9	51128.1	47993.55	54467.38
Aug-2020	48557.3	51315.46	47994.58	54866.12
Sep-2020	49654.0	51503.51	48004.62	55257.41
Oct-2020	50544.5	51692.24	48022.41	55642.52
Nov-2020	50236.2	51881.67	48046.96	56022.43
Dec-2020	49433.9	52071.79	48077.48	56397.94
Jan-2021	50073.5	52262.61	48113.33	56769.71
Feb-2021	48975.8	52454.12	48153.99	57138.26
Mar-2021	51991.5	52646.34	48198.99	57504.05
Apr-2021	50121.2	52839.26	48247.97	57867.46
May-2021	51537.8	53032.89	48300.61	58228.82
Jun-2021	51388.8	53227.23	48356.63	58588.41
Jul-2021	53623.1	53422.28	48415.78	58946.49
Aug-2021	53079.3	53618.05	48477.86	59303.27
Sep-2021	51610.8	53814.53	48542.67	59658.93
Oct-2021	54156.2	54011.74	48610.06	60013.66
Nov-2021		54209.66	48679.87	60367.61
Dec-2021		54408.31	48751.97	60720.92

Text version

Date	Quantities	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	76.04
Feb-2010	77.94
Mar-2010	82.70
Apr-2010	80.34
May-2010	82.37
Jun-2010	83.21
Jul-2010	83.75
Aug-2010	84.67
Sep-2010	84.56
Oct-2010	84.08
Nov-2010	83.66
Dec-2010	84.18
Jan-2011	86.73
Feb-2011	83.94
Mar-2011	87.24
Apr-2011	86.68
May-2011	87.17
Jun-2011	86.27
Jul-2011	87.70
Aug-2011	88.15
Sep-2011	87.12
Oct-2011	89.20
Nov-2011	87.73
Dec-2011	89.49
Jan-2012	89.16
Feb-2012	89.41
Mar-2012	90.23
Apr-2012	89.35
May-2012	89.74
Jun-2012	90.72
Jul-2012	92.08
Aug-2012	89.69
Sep-2012	89.86
Oct-2012	88.71
Nov-2012	91.84
Dec-2012	90.01
Jan-2013	90.82
Feb-2013	91.43
Mar-2013	91.12
Apr-2013	93.16
May-2013	92.73
Jun-2013	90.86
Jul-2013	90.89
Aug-2013	92.91
Sep-2013	91.67
Oct-2013	90.86
Nov-2013	93.32
Dec-2013	91.94
Jan-2014	90.19
Feb-2014	92.19
Mar-2014	91.77
Apr-2014	92.77
May-2014	95.99
Jun-2014	94.09
Jul-2014	94.34
Aug-2014	94.72
Sep-2014	95.31
Oct-2014	96.81
Nov-2014	94.81
Dec-2014	95.77
Jan-2015	94.21
Feb-2015	93.88
Mar-2015	97.07
Apr-2015	94.12
May-2015	94.58
Jun-2015	94.63
Jul-2015	93.36
Aug-2015	94.19
Sep-2015	92.64
Oct-2015	93.28
Nov-2015	93.80
Dec-2015	93.29
Jan-2016	93.38
Feb-2016	94.53
Mar-2016	94.00
Apr-2016	94.42
May-2016	93.50
Jun-2016	93.59
Jul-2016	92.18
Aug-2016	93.94
Sep-2016	99.10
Oct-2016	93.08
Nov-2016	92.23
Dec-2016	93.17
Jan-2017	97.16
Feb-2017	97.07
Mar-2017	95.83
Apr-2017	96.86
May-2017	98.78
Jun-2017	98.81
Jul-2017	96.39
Aug-2017	95.83
Sep-2017	98.24
Oct-2017	96.00
Nov-2017	100.39
Dec-2017	101.73
Jan-2018	98.14
Feb-2018	99.24
Mar-2018	103.52
Apr-2018	101.33
May-2018	102.84
Jun-2018	101.44
Jul-2018	100.10
Aug-2018	99.02
Sep-2018	99.10
Oct-2018	98.56
Nov-2018	97.52
Dec-2018	98.36
Jan-2019	100.21
Feb-2019	101.12
Mar-2019	102.60
Apr-2019	100.39
May-2019	101.88
Jun-2019	99.12
Jul-2019	100.24
Aug-2019	101.23
Sep-2019	98.89
Oct-2019	98.85
Nov-2019	97.77
Dec-2019	97.70
Jan-2020	97.29	98.88347	95.99835	101.8553
Feb-2020	98.37	99.08343	95.90724	102.3648
Mar-2020	93.00	99.2838	95.84008	102.8513
Apr-2020	74.03	99.48458	95.79166	103.3199
May-2020	70.79	99.68576	95.75842	103.7742
Jun-2020	86.85	99.88735	95.73782	104.2167
Jul-2020	95.26	100.0893	95.72795	104.6494
Aug-2020	96.15	100.2917	95.72734	105.0738
Sep-2020	97.82	100.4946	95.73482	105.4909
Oct-2020	99.08	100.6978	95.74946	105.9018
Nov-2020	99.16	100.9014	95.7705	106.3072
Dec-2020	98.63	101.1055	95.7973	106.7077
Jan-2021	99.12	101.3099	95.82932	107.104
Feb-2021	96.35	101.5148	95.86611	107.4963
Mar-2021	103.60	101.7201	95.90727	107.8852
Apr-2021	97.98	101.9258	95.95248	108.2709
May-2021	101.64	102.1319	96.00142	108.6538
Jun-2021	99.76	102.3384	96.05385	109.0342
Jul-2021	101.22	102.5454	96.10953	109.4122
Aug-2021	98.86	102.7527	96.16825	109.7881
Sep-2021	94.83	102.9605	96.22983	110.162
Oct-2021	100.1214	103.1687	96.29412	110.5342
Nov-2021		103.3774	96.36095	110.9047
Dec-2021		103.5864	96.4302	111.2737

Text version

Date	Prices	Point Estimates	Lower bound of CI	Upper bound of CI
Jan-2010	82.07
Feb-2010	82.80
Mar-2010	80.22
Apr-2010	79.68
May-2010	82.06
Jun-2010	81.64
Jul-2010	81.89
Aug-2010	82.37
Sep-2010	82.26
Oct-2010	82.21
Nov-2010	82.31
Dec-2010	82.23
Jan-2011	82.85
Feb-2011	83.08
Mar-2011	83.59
Apr-2011	83.47
May-2011	84.57
Jun-2011	84.73
Jul-2011	83.56
Aug-2011	85.33
Sep-2011	86.95
Oct-2011	87.42
Nov-2011	88.10
Dec-2011	86.61
Jan-2012	86.98
Feb-2012	86.53
Mar-2012	85.51
Apr-2012	85.98
May-2012	86.85
Jun-2012	87.25
Jul-2012	86.04
Aug-2012	85.07
Sep-2012	84.55
Oct-2012	85.14
Nov-2012	85.38
Dec-2012	84.38
Jan-2013	84.89
Feb-2013	85.83
Mar-2013	86.20
Apr-2013	85.37
May-2013	85.20
Jun-2013	85.93
Jul-2013	86.63
Aug-2013	87.19
Sep-2013	87.53
Oct-2013	87.47
Nov-2013	86.69
Dec-2013	87.89
Jan-2014	89.44
Feb-2014	90.29
Mar-2014	91.32
Apr-2014	91.32
May-2014	90.91
Jun-2014	90.28
Jul-2014	90.31
Aug-2014	90.40
Sep-2014	90.93
Oct-2014	91.21
Nov-2014	91.54
Dec-2014	91.44
Jan-2015	92.69
Feb-2015	92.67
Mar-2015	93.74
Apr-2015	93.98
May-2015	93.29
Jun-2015	93.45
Jul-2015	96.30
Aug-2015	96.25
Sep-2015	97.65
Oct-2015	95.78
Nov-2015	96.17
Dec-2015	97.33
Jan-2016	97.95
Feb-2016	96.19
Mar-2016	92.99
Apr-2016	92.35
May-2016	93.04
Jun-2016	93.71
Jul-2016	94.52
Aug-2016	94.95
Sep-2016	94.69
Oct-2016	96.12
Nov-2016	96.12
Dec-2016	95.75
Jan-2017	94.66
Feb-2017	95.34
Mar-2017	96.71
Apr-2017	97.69
May-2017	98.03
Jun-2017	97.38
Jul-2017	94.71
Aug-2017	94.73
Sep-2017	93.28
Oct-2017	94.24
Nov-2017	96.01
Dec-2017	96.01
Jan-2018	95.35
Feb-2018	96.24
Mar-2018	97.48
Apr-2018	97.32
May-2018	97.76
Jun-2018	99.98
Jul-2018	100.56
Aug-2018	100.74
Sep-2018	100.88
Oct-2018	99.90
Nov-2018	100.38
Dec-2018	101.56
Jan-2019	101.04
Feb-2019	99.53
Mar-2019	100.43
Apr-2019	100.98
May-2019	100.80
Jun-2019	100.24
Jul-2019	99.14
Aug-2019	99.78
Sep-2019	99.50
Oct-2019	99.52
Nov-2019	98.78
Dec-2019	99.02
Jan-2020	99.79	99.06605	97.40049	100.7601
Feb-2020	99.99	99.33914	96.83456	101.9085
Mar-2020	102.30	99.45889	96.55188	102.4534
Apr-2020	98.03	99.58112	96.36548	102.9041
May-2020	99.03	99.74265	96.21003	103.405
Jun-2020	97.22	99.90879	96.07086	103.9
Jul-2020	99.20	100.0659	95.95098	104.3572
Aug-2020	98.67	100.2209	95.84985	104.7913
Sep-2020	99.25	100.3783	95.76369	105.2153
Oct-2020	99.64	100.5367	95.68922	105.6298
Nov-2020	98.93	100.695	95.62477	106.0341
Dec-2020	98.04	100.8533	95.56929	106.4294
Jan-2021	98.67	101.0119	95.52182	106.8174
Feb-2021	99.27	101.1708	95.48145	107.1991
Mar-2021	98.00	101.3299	95.44742	107.575
Apr-2021	99.92	101.4893	95.41915	107.9456
May-2021	99.03	101.6489	95.39613	108.3116
Jun-2021	100.60	101.8088	95.37791	108.6734
Jul-2021	103.47	101.969	95.36413	109.0313
Aug-2021	104.86	102.1294	95.35444	109.3856
Sep-2021	106.29	102.29	95.34854	109.7368
Oct-2021	105.6278	102.4509	95.34619	110.085
Nov-2021		102.6121	95.34714	110.4305
Dec-2021		102.7735	95.3512	110.7735

5. Impact of export and import prices on the Canadian economy

There are two reasons why export and import prices are important for the Canadian economy. The first is that both export and import prices are eventually passed through to domestic prices. If Canadian exporters are price takers then the mechanism is relatively straightforward. When the global price increases, then it is more profitable for exporters to sell their goods on the global market rather than the domestic market. Thereafter, the domestic market adjusts to the new world price. Likewise, when the global price falls, goods should become cheaper in the domestic market. The mechanisms are more complicated if Canadian exporters are price setters rather than price takers, but in general, higher export prices are associated with higher domestic prices. While there is not much of a correlation between export prices and consumer prices, figure 8 shows that industrial prices, as measured by the industrial producer price index (IPPI), and export prices move nearly one-for-one. Consumer price inflation has made headlines recently by being at their highest point since the 1990’s and close to 5%. However, industrial price inflation is actually much higher and as industrial prices rose 12.4% year-over-year as of October.

Figure 8: Export prices excluding oil and IPPI excluding energy ^{Footnote 9}

Text version

Date	IPPI ex. Energy	Export prices ex. Oil
01-Jan	0.032337	0.073956
01-Feb	0.037372	0.062336
01-Mar	0.048113	0.09608
01-Apr	0.048621	0.115927
01-May	0.035444	0.064719
01-Jun	0.046079	0.090292
01-Jul	0.043775	0.058898
01-Aug	0.050686	0.077013
01-Sep	0.048976	0.100538
01-Oct	0.03338	0.085583
01-Nov	0.031814	0.086362
01-Dec	0.020396	0.067284
01-Jan	0.018324	-0.02101
01-Feb	0.01613	0.004434
01-Mar	0.010207	-0.00195
01-Apr	0.006479	-0.0069
01-May	0.008024	0.000667
01-Jun	0.007828	-0.01298
01-Jul	0.002993	0.020879
01-Aug	-0.01344	-0.01431
01-Sep	-0.01132	-0.03324
01-Oct	-0.001	-0.01156
01-Nov	0.000571	-0.01245
01-Dec	0.006546	0.01121
01-Jan	0.002824	0.031327
01-Feb	0.002156	0.018563
01-Mar	0.004603	0.021487
01-Apr	0.000526	0.019035
01-May	-0.00092	0.010431
01-Jun	-0.00329	-0.00266
01-Jul	-0.00094	0.00789
01-Aug	0.008329	0.00919
01-Sep	-0.001	0.000881
01-Oct	-0.00212	-0.00575
01-Nov	-0.00221	-0.00213
01-Dec	0.001818	0.012904
01-Jan	0.014465	0.052626
01-Feb	0.018423	0.056524
01-Mar	0.024665	0.04285
01-Apr	0.02716	0.025311
01-May	0.02506	0.031247
01-Jun	0.024589	0.033929
01-Jul	0.031026	0.02369
01-Aug	0.031055	0.036979
01-Sep	0.034059	0.043136
01-Oct	0.036652	0.034666
01-Nov	0.034676	0.03975
01-Dec	0.034008	0.022883
01-Jan	0.035678	0.005345
01-Feb	0.035472	0.017576
01-Mar	0.02861	0.012355
01-Apr	0.026393	0.019901
01-May	0.029546	0.016403
01-Jun	0.031087	0.029152
01-Jul	0.037749	0.054847
01-Aug	0.041583	0.060305
01-Sep	0.041797	0.063792
01-Oct	0.036112	0.054744
01-Nov	0.0313	0.039568
01-Dec	0.034622	0.048624
01-Jan	0.03593	0.045251
01-Feb	0.020489	-0.00423
01-Mar	0.007761	-0.01032
01-Apr	0.00173	-0.01007
01-May	0.007613	0.003973
01-Jun	0.007306	0.004624
01-Jul	0.008563	0.005421
01-Aug	0.001468	-0.01295
01-Sep	0.003243	-0.00039
01-Oct	0.009595	0.017075
01-Nov	0.021055	0.028373
01-Dec	0.011245	0.02159
01-Jan	0.001001	0.009772
01-Feb	0.011182	0.028114
01-Mar	0.033079	0.056465
01-Apr	0.045282	0.081872
01-May	0.045005	0.077956
01-Jun	0.034591	0.05359
01-Jul	0.009611	0.000726
01-Aug	0.012683	0.012087
01-Sep	-0.00081	-0.01318
01-Oct	0.006987	-0.00576
01-Nov	0.006715	-0.0007
01-Dec	0.010585	-0.00368
01-Jan	0.009693	-0.0062
01-Feb	0.01214	0.006266
01-Mar	0.008365	0.004731
01-Apr	0.004108	-0.0065
01-May	0.004045	-0.00541
01-Jun	0.019798	0.027616
01-Jul	0.036107	0.061456
01-Aug	0.029813	0.047907
01-Sep	0.041201	0.051174
01-Oct	0.030724	0.040203
01-Nov	0.026811	0.037448
01-Dec	0.030395	0.039435
01-Jan	0.027985	0.035066
01-Feb	0.02065	0.034475
01-Mar	0.016107	0.029625
01-Apr	0.018582	0.020392
01-May	0.008421	0.011917
01-Jun	-0.00526	-0.01897
01-Jul	-0.0066	-0.02366
01-Aug	0.004773	-0.01129
01-Sep	0.003339	-0.00013
01-Oct	0.000348	-0.00514
01-Nov	0.000263	-0.00917
01-Dec	-0.00124	-0.01249
01-Jan	0.002694	-0.00853
01-Feb	0.010501	-0.0146
01-Mar	0.01599	-0.00964
01-Apr	0.012276	-0.022
01-May	0.018802	-0.00556
01-Jun	0.01751	0.010841
01-Jul	0.029769	0.022005
01-Aug	0.033712	0.022994
01-Sep	0.048354	0.030075
01-Oct	0.04891	0.036844
01-Nov	0.043155	0.039241
01-Dec	0.050451	0.044442
01-Jan	0.064261	0.074103
01-Feb	0.081619	0.106844
01-Mar	0.085633	0.085457
01-Apr	0.109791	0.133768
01-May	0.135462	0.12901
01-Jun	0.146145	0.154218
01-Jul	0.136584	0.153767
01-Aug	0.118942	0.134708
01-Sep	0.117967	0.134987
01-Oct	0.124407	0.14851

Import prices also have a positive correlation with Canadian domestic prices. When the global price of imports increase, Canadians and Canadian firms either have to pay the new global price for those goods, substitute to a domestic supplier, or use a substitute good. With only mild economic assumptions, in each case the price paid for the goods increases. As seen in figure 9, compared to export prices and industrial prices, import prices and consumer prices have had a much milder increase in the past year.

Figure 9: Import prices excluding oil, the IPPI excluding energy, and CPI goods excluding energy

Text version

Date	CPI goods ex. energy	IPPI ex. Energy	Import prices ex. Oil
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11	-0.00231	0.032337	0.00209973
Feb-11	-0.00484	0.037372	-0.005618758
Mar-11	0.007491	0.048113	0.023432698
Apr-11	-0.00188	0.048621	0.027871389
May-11	-0.0052	0.035444	0.011042676
Jun-11	-0.01196	0.046079	0.022128025
Jul-11	-0.00619	0.043775	0.003177648
Aug-11	-0.00469	0.050686	0.023898616
Sep-11	0.000893	0.048976	0.041706874
Oct-11	-0.00049	0.03338	0.049476264
Nov-11	0.002362	0.031814	0.056510712
Dec-11	-0.00062	0.020396	0.046825204
Jan-12	0.00327	0.018324	0.040833546
Feb-12	0.001868	0.01613	0.031982464
Mar-12	-0.01015	0.010207	0.021863593
Apr-12	0.002364	0.006479	0.032925135
May-12	0.009091	0.008024	0.027745535
Jun-12	0.01184	0.007828	0.032739116
Jul-12	0.008712	0.002993	0.033703405
Aug-12	0.007021	-0.01344	-0.008420738
Sep-12	-0.00287	-0.01132	-0.029122541
Oct-12	4.73E-05	-0.001	-0.028720773
Nov-12	0.001359	0.000571	-0.030081709
Dec-12	0.002914	0.006546	-0.030705783
Jan-13	-0.00117	0.002824	-0.024800532
Feb-13	0.029127	0.002156	-0.00463225
Mar-13	0.028296	0.004603	0.013332442
Apr-13	0.023462	0.000526	-0.000660226
May-13	0.020418	-0.00092	-0.008489108
Jun-13	0.022354	-0.00329	-0.015195764
Jul-13	0.02041	-0.00094	0.010456263
Aug-13	0.021642	0.008329	0.025398993
Sep-13	0.024819	-0.001	0.031132973
Oct-13	0.025475	-0.00212	0.032184087
Nov-13	0.019521	-0.00221	0.02409486
Dec-13	0.020921	0.001818	0.049281399
Jan-14	0.020788	0.014465	0.064682983
Feb-14	-0.00139	0.018423	0.058846086
Mar-14	0.002889	0.024665	0.064824056
Apr-14	0.002947	0.02716	0.07699807
May-14	0.0064	0.02506	0.066316472
Jun-14	0.013226	0.024589	0.052604537
Jul-14	0.011518	0.031026	0.037208105
Aug-14	0.012688	0.031055	0.0428672
Sep-14	0.016204	0.034059	0.04972508
Oct-14	0.016397	0.036652	0.051940676
Nov-14	0.024546	0.034676	0.059638632
Dec-14	0.031006	0.034008	0.0530432
Jan-15	0.045366	0.035678	0.044322832
Feb-15	0.037662	0.035472	0.043052472
Mar-15	0.041048	0.02861	0.040990719
Apr-15	0.042377	0.026393	0.03419227
May-15	0.043342	0.029546	0.031211744
Jun-15	0.038846	0.031087	0.044023892
Jul-15	0.039265	0.037749	0.077366657
Aug-15	0.038657	0.041583	0.07493135
Sep-15	0.040352	0.041797	0.084808322
Oct-15	0.041144	0.036112	0.056745986
Nov-15	0.037823	0.0313	0.058489394
Dec-15	0.03397	0.034622	0.069554117
Jan-16	0.028968	0.03593	0.067172267
Feb-16	0.032357	0.020489	0.040210413
Mar-16	0.030535	0.007761	-0.001796885
Apr-16	0.02966	0.00173	-0.007732983
May-16	0.025048	0.007613	0.010135265
Jun-16	0.024194	0.007306	0.010443443
Jul-16	0.023578	0.008563	-0.010958929
Aug-16	0.020606	0.001468	-0.010154847
Sep-16	0.014888	0.003243	-0.028353195
Oct-16	0.006469	0.009595	0.004823953
Nov-16	0.003095	0.021055	-0.000976779
Dec-16	0.001137	0.011245	-0.018667016
Jan-17	-0.00159	0.001001	-0.038587388
Feb-17	-0.0025	0.011182	-0.018021613
Mar-17	-0.00516	0.033079	0.030757471
Apr-17	-0.00901	0.045282	0.046312477
May-17	-0.00183	0.045005	0.047080116
Jun-17	0.000763	0.034591	0.034341925
Jul-17	0.003742	0.009611	-0.001997459
Aug-17	0.003389	0.012683	-0.002432888
Sep-17	0.003066	-0.00081	-0.01615926
Oct-17	0.007463	0.006987	-0.018738864
Nov-17	0.010004	0.006715	-0.000961319
Dec-17	0.014756	0.010585	0.000674066
Jan-18	0.006357	0.009693	0.003235314
Feb-18	0.006794	0.01214	0.012112864
Mar-18	0.004105	0.008365	0.00939606
Apr-18	0.011116	0.004108	-0.000244247
May-18	-0.00016	0.004045	-0.004937968
Jun-18	0.00374	0.019798	0.026792605
Jul-18	0.00047	0.036107	0.062285132
Aug-18	0.004169	0.029813	0.053184237
Sep-18	0.005102	0.041201	0.076763802
Oct-18	0.007874	0.030724	0.057596604
Nov-18	0.009717	0.026811	0.043266161
Dec-18	0.011546	0.030395	0.060053334
Jan-19	0.018695	0.027985	0.062568672
Feb-19	0.025419	0.02065	0.036289237
Mar-19	0.026963	0.016107	0.026518107
Apr-19	0.021236	0.018582	0.036764239
May-19	0.029683	0.008421	0.032699283
Jun-19	0.026912	-0.00526	0.001637127
Jul-19	0.029328	-0.0066	-0.015175071
Aug-19	0.027751	0.004773	-0.002925828
Sep-19	0.03258	0.003339	-0.010784879
Oct-19	0.028673	0.000348	-0.005590265
Nov-19	0.029088	0.000263	-0.014790508
Dec-19	0.021897	-0.00124	-0.026887322
Jan-20	0.021737	0.002694	-0.011087787
Feb-20	0.014998	0.010501	0.004852979
Mar-20	0.021108	0.01599	0.025059057
Apr-20	0.02384	0.012276	-0.017882062
May-20	0.017731	0.018802	-0.001459828
Jun-20	0.019101	0.01751	-0.008269946
Jul-20	0.016647	0.029769	0.009364022
Aug-20	0.012437	0.033712	-0.006301414
Sep-20	0.007577	0.048354	0.006318304
Oct-20	0.013233	0.04891	0.010005463
Nov-20	0.012288	0.043155	0.008537364
Dec-20	0.008422	0.050451	-0.003844373
Jan-21	0.007073	0.064261	-0.007921717
Feb-21	0.006998	0.081619	-0.00590183
Mar-21	0.002185	0.085633	-0.039846703
Apr-21	0.005236	0.109791	0.006775308
May-21	0.016447	0.135462	-0.01764766
Jun-21	0.018141	0.146145	0.012188456
Jul-21	0.024295	0.136584	0.03085261
Aug-21	0.0313	0.118942	0.059006894
Sep-21	0.03511	0.117967	0.059795652
Oct-21	0.030588	0.124407	0.049242417

Import prices appear to only have a middling correlation with both consumer prices (as measured by the consumer price index) and industrial prices. Importantly, this does not mean the import prices do not affect domestic prices. Import prices must eventually be passed through to domestic prices. What it means is that there are factors other than import prices that go into determining domestic prices. While this statement may seem trivial, it highlights the tightness of the correlation between industrial prices and export prices in figure 8. Not only do export prices and domestic industrial prices move together, but there doesn’t appear to be much room for other factors to play a role in determining industrial prices. Perhaps the tight correlation is expected as merchandise exports are a subset of industrial production whereas only about 25% of CPI goods are imported.^{Footnote 10 Footnote 11} While two graphs is insufficient evidence to make any broad claims about the price determination in the Canadian economy, they are suggestive of a tight mechanism.

The second reason why trade prices matter is the price of exports relative to the price of imports, known as the terms of trade. If the price of exports increases faster than the price of imports, a terms of trade appreciation, then Canadians are able to consume more imports for the same quantity of exports. In other words, holding export quantities constant, a terms of trade appreciation leads to an increase in utility for Canadians. Conversely, if the price of imports increases faster than the price of exports, a terms of trade depreciation, then Canadians must reduce consumption of imports—resulting in a decrease in utility—or export a higher quantity to compensate for the lower prices. Figure 10 has the official terms of trade from the National accounts (at a quarterly basis) as well as the terms of trade implied by the monthly merchandise price series used in this paper. ^{Footnote 12}

Figure 10: Canada’s terms of trade

Text version

Date	Calculated terms of trade		Official ToT (quarterly)
Jan-2010	102.6084605	Q1 2010	105.5202
Feb-2010	102.5266556	Q2 2010	103.8217
Mar-2010	103.3777394	Q3 2010	102.6539
Apr-2010	102.5714133	Q4 2010	105.2017
May-2010	102.1698326	Q1 2011	107.8556
Jun-2010	101.8111939	Q2 2011	108.5987
Jul-2010	100.8823874	Q3 2011	107.1125
Aug-2010	101.2401155	Q4 2011	107.5372
Sep-2010	101.1594304	Q1 2012	107.0064
Oct-2010	101.6974705	Q2 2012	104.5648
Nov-2010	103.0580837	Q3 2012	105.5202
Dec-2010	104.3430892	Q4 2012	107.5372
Jan-2011	109.9154822	Q1 2013	107.6433
Feb-2011	108.1125773	Q2 2013	107.2187
Mar-2011	109.1540581	Q3 2013	106.9002
Apr-2011	111.5032254	Q4 2013	105.6263
May-2011	109.1491724	Q1 2014	107.7495
Jun-2011	109.8496733	Q2 2014	106.1571
Jul-2011	106.8172873	Q3 2014	105.5202
Aug-2011	106.5730348	Q4 2014	102.1231
Sep-2011	107.4393116	Q1 2015	99.15074
Oct-2011	106.8629414	Q2 2015	99.36306
Nov-2011	107.8709812	Q3 2015	97.23992
Dec-2011	108.5271943	Q4 2015	96.07219
Jan-2012	106.2391332	Q1 2016	94.26752
Feb-2012	107.64315	Q2 2016	96.60297
Mar-2012	108.3111291	Q3 2016	97.55839
Apr-2012	106.4236037	Q4 2016	99.04459
May-2012	104.8577221	Q1 2017	100.7431
Jun-2012	104.2082841	Q2 2017	99.36306
Jul-2012	104.3104594	Q3 2017	99.78769
Aug-2012	106.0135112	Q4 2017	101.6985
Sep-2012	107.4196258	Q1 2018	101.8047
Oct-2012	108.7953552	Q2 2018	102.7601
Nov-2012	107.4485133	Q3 2018	101.8047
Dec-2012	109.3187695	Q4 2018	96.70913
Jan-2013	108.9123463	Q1 2019	99.89384
Feb-2013	108.3427073	Q2 2019	100.4246
Mar-2013	108.7354772	Q3 2019	99.46921
Apr-2013	109.0458128	Q4 2019	100.2123
May-2013	108.1950688	Q1 2020	95.32909
Jun-2013	106.9508189	Q2 2020	92.46285
Jul-2013	108.2483464	Q3 2020	98.30149
Aug-2013	108.771687	Q4 2020	100.7431
Sep-2013	107.4709872	Q1 2021	107.2187
Oct-2013	106.689331	Q2 2021	111.9958
Nov-2013	106.4055635	Q3 2021	110.1911
Dec-2013	106.6416713
Jan-2014	109.2040264
Feb-2014	111.0978875
Mar-2014	109.7677631
Apr-2014	106.8677313
May-2014	107.0447854
Jun-2014	107.4096525
Jul-2014	106.6748814
Aug-2014	106.5243941
Sep-2014	105.6277926
Oct-2014	104.1863318
Nov-2014	103.7074594
Dec-2014	100.4835757
Jan-2015	98.76261438
Feb-2015	100.8780622
Mar-2015	98.68947548
Apr-2015	98.20285151
May-2015	99.3761239
Jun-2015	100.2006757
Jul-2015	98.19545517
Aug-2015	97.29803137
Sep-2015	95.05497485
Oct-2015	96.59632497
Nov-2015	95.862869
Dec-2015	94.21541538
Jan-2016	93.8220919
Feb-2016	92.40591594
Mar-2016	94.6627222
Apr-2016	95.63216477
May-2016	96.57379556
Jun-2016	96.83280051
Jul-2016	97.74825623
Aug-2016	96.45556779
Sep-2016	98.08438267
Oct-2016	98.37345203
Nov-2016	99.11566843
Dec-2016	100.446543
Jan-2017	102.223504
Feb-2017	101.3068401
Mar-2017	100.1183875
Apr-2017	99.6681891
May-2017	99.73744835
Jun-2017	98.20048942
Jul-2017	97.76805062
Aug-2017	98.56491591
Sep-2017	99.62255216
Oct-2017	100.3173625
Nov-2017	101.0067552
Dec-2017	101.8605562
Jan-2018	102.1689234
Feb-2018	100.7492933
Mar-2018	100.793429
Apr-2018	101.7082464
May-2018	103.2398301
Jun-2018	102.7478125
Jul-2018	102.3474946
Aug-2018	101.3804811
Sep-2018	100.4109412
Oct-2018	100.9598324
Nov-2018	94.17145074
Dec-2018	91.02036832
Jan-2019	96.16237256
Feb-2019	100.9940961
Mar-2019	102.0696188
Apr-2019	102.0441386
May-2019	101.3052071
Jun-2019	98.59993793
Jul-2019	99.19730081
Aug-2019	98.94831663
Sep-2019	100.0163991
Oct-2019	99.7403787
Nov-2019	100.9614184
Dec-2019	99.97066559
Jan-2020	98.09248584
Feb-2020	95.08811014
Mar-2020	89.68444919
Apr-2020	84.83798657
May-2020	88.95966382
Jun-2020	97.57221371
Jul-2020	97.35314651
Aug-2020	98.87474568
Sep-2020	97.95153497
Oct-2020	99.02315018
Nov-2020	99.70569841
Dec-2020	102.0682229
Jan-2021	104.5650931
Feb-2021	107.8979315
Mar-2021	109.6975632
Apr-2021	110.3775797
May-2021	113.0938645
Jun-2021	114.5436261
Jul-2021	112.1069196
Aug-2021	109.2621882
Sep-2021	109.8103979
Oct-2021	114.3018284
Nov-2021
Dec-2021