Fill in the blanks. Only the blanks.
Let’s suppose U.S. inflation is 7% and Canada’s inflation is 3%.
Further assume the U.S. dollar depreciates nominally about 4% relative to the CAD (meaning the CAD appreciates nominally approximately _______ % versus the USD
The U.S. is not necessarily going to import more from Canada just because Canada’s inflation is lower than the U.S.’s. Inflation is only one part of a two-part story.
Why don’t U.S. consumers take advantage of the lower Canadian inflation?
Because the U.S. importer finds that buying CAD at a _________% higher price and then paying __________% higher prices for the goods than they did a year ago results in, effectively, a __________% increase in the cost of buying Canadian goods.
That’s the ____________ price increase the U.S. buyer sees at home! Importing from Canada is no less attractive (but no more either) than it used to be.