Stagflation risks loom, but not for Canada: Scotia

By James Langton | March 30, 2022 | Last updated on March 30, 2022
2 min read

The market and economic fallout from Russia’s invasion of Ukraine is not only boosting inflation and creating a drag on global economic growth, it’s now expected to produce stagflation in certain countries, according to a new report from economists at the Bank of Nova Scotia.

The conflict in Ukraine has already caused certain commodity prices to soar, most notably oil and industrial metals — intensifying inflationary pressures.

“The war is already hindering access to key commodities, adding to multi-decade-high price pressures already experienced as a result of ensnarled global supply chains,” the report said.

As a result, Scotia has revised its inflation forecasts higher – to 5.9% in Canada and up to 7.7% for the U.S.

These added inflationary pressures are expected to lead to faster monetary policy tightening in both Canada and the U.S., the report said.

However, Scotia doesn’t see these forces leading to an economic downturn — at least not for Canada and the U.S.

“Acknowledging that downside risks are real, we do not forecast a U.S. recession at this time,” it said. “There is pent-up pandemic demand across the global economy that could help offset the inflation and rate hike hit to consumer spending.”

Additionally, increased oil independence for the U.S. may protect it from the stagflationary conditions that emerged the last time that inflation was this high, the report suggested.

As a commodity exporter, Canada will likely see improved terms of trade due to the higher commodity prices, it noted.

However, more energy dependent nations may not be so lucky.

Indeed, Scotia’s forecasts anticipate that countries that are, “geographically closest to the conflict and most reliant on Russian and Ukrainian commodity imports—notably those in Europe—to experience stagflationary drags.”

“For all countries, volatility and uncertainty created by the conflict will likely weigh on investor sentiment and delay capital outlays,” it added.

However, the heightened uncertainty should be good for prices of gold and other precious metals.

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.