Rail shutdown could ‘jeopardize’ some inflation progress: economists

Uncertainty around how long rail disruptions may last could have dire implications for the Canadian economy. Here's what economists say about how the Bank of Canada might react.

As questions swirl around how long Canadian rail lines might stay dormant, some economists argue that the Bank of Canada ought to look past any disruptions as it looks to tame inflation and ease pressure on the stagnant economy.

The federal government on Thursday waded into a rail shutdown that began earlier that day, promising to impose binding arbitration to get a deal between CN Rail, Canadian Pacific Kansas City and the union representing more than 9,000 of workers in the country.

The Teamsters Canada Rail Conference said Friday, however, that it would challenge the labour minister’s order in court.

Uncertainty around how long these disruptions may last could have dire implications for the Canadian economy, given the critical function rail lines play in ferrying goods coast to coast for sectors like the agricultural, automotive and retail industries.

The hit to Canada’s economy could snowball if the rail stoppage stretches on, according to an analysis from Bank of Montreal.

Senior economist Robert Kavcic said in a note to clients Thursday morning that another “supply shock” for the economy could, in the near term, hurt growth and stoke inflation — just as price pressures are finally coming back under control.

Inflation eased to 2.5 per cent annually in July, continuing a cooling trend seen through much of the year.

But supply chain snarls were at the heart of the early days of the current inflationary episode: consumer demand exploded in the pandemic recovery, while semiconductor shortages and long delivery times drove up prices on goods like vehicles and appliances.