A lower Canadian dollar, especially against the greenback, has sparked fears that import prices will rise—lighting up inflation just as it’s finally settling down.

But with domestic services dominating more of what we buy and Canada importing more from countries outside the U.S., these currency fluctuations matter less to prices than they once did.

 

Even for exchange-rate sensitive food products, one third of the $100 billion+ annually spent on food in Canada can be traced back to domestic services like shipping and retail. And as the U.S. share of imports has fallen, Chinese imports have steadily risen (and the Canadian dollar is stronger against the yuan.)

 

The bottom line: A weak CAD won’t derail inflation trends that are now heading in the right direction. In an increasingly services-dominant economy, demand, not currency, will decide where prices go.

 

Below are a few graphics of interest pulled from the full RBC Economics report here.