Bar the Door

THE DOMINION

Like a nervous housewife, Canada has tensely watched the brawl over OPA among her Good Neighbors to the south. Last week Canada hastily decided to bar the door against the inflation she felt was coming, now that OPA was dead.

Finance Minister James Lorimer Ilsley announced that Canada had lifted the Canadian dollar to par with the U.S. dollar for the first time in seven years (it has been pegged at 10% less). He also unveiled a well-pondered plan to cushion Canada against U.S. price rises.

Under the plan:

P: Price control will be rigidly maintained on a long list of household goods and services (food, clothing, fuel, furniture, autos, building materials).

P: Imported goods under price control (and Canada gets over three quarters of its imports from the U.S.) will be granted a smaller markup than goods made in Canada. This will not only reduce the profits from sales of imports from the U.S., it will also discourage imports. Government import subsidies, which cost Canada some $100,000,000 last year, will be increased, if necessary.

Most important was the revaluation of the Canadian dollar. This was a popular political move. The change will tend to reduce the cost of Canadian imports 10%, but it will also tend to increase the cost to others of Canada's exports. It will also make it easier for Britain, and other countries in the sterling area, to export to Canada. So far as concerns Canada, the principal effect will be to devalue the pound to $4.02-4.04 from $4.43-4.45.

No Cure-All. In addition to this deflationary revaluation, Canada means also to do some belt-tightening. If prices go too high in the U.S., then Canada will probably cut down on certain imports. The attitude of some officials was: "If oranges go way up, we'll get along without oranges as England does. Let Canadians eat Canadian apples."

But everything was not quite as simple as that. Revaluation had already dealt what might be a knockout wallop to Canada's gold-mining industry, just getting back on its feet from the war slowdown. And it might hit the tourist trade, which annually pours some $150,000,000 into Canada. U.S. tourists will no longer get $1.10 for their U.S. dollars. But if fewer tourists come because of the lost premium, Canada will lose some badly needed dollar exchange.

And Canada may also help fuel the U.S. inflation she fears. Her biggest exports are lumber, wood products and paper--and the U.S. buys most of them. If Canadian lumber and papermen boost prices in U.S. dollars in order to maintain their profit margins, then U.S. manufacturers may have to boost prices in their turn, and there will be more outside inflation pressuring Canada.

In the end, the thing that may keep down inflation in Canada is not so much her new rules as the old fact that her price movements now lag behind those of the U.S. Thus, the inflationary pressures may not reach their peak in Canada until U.S. production is high enough to put a rein on prices.

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