Among the many economic questions arising out of the COVID-19 pandemic is: what can we expect when it comes to inflation? Are prices going to go through the roof or are we going to experience an extended period of deflation?

As is the case with most of the economic implications of the pandemic, the crystal ball is currently quite fuzzy about what’s next for inflation. We can, however, make some educated guesses.

Because the pandemic is causing the economy to slow down and reducing demand, the overall inflation rate will likely fall. 

Gas prices illustrate this larger effect. Leaving aside the price erosion brought on by the collapse of OPEC+ a few weeks ago, reduced demand in the wake of COVID-19 has pushed pump prices down. As we’ve discussed in previous editions of The Owl, this is good news for drivers, but bad news for an oil producing province like Alberta.

Milk provides another example of how COVID-19 could dampen prices. Reduced demand due to restaurant and hotel closures led some Quebec dairy farmers to dump a small amount of excess supply to prevent prices from falling.

Government spending, low interest rates and quantitative easing should, however, keep demand from collapsing and ward off widespread deflation. 

On the flip side, there is some concern that the efforts to ease the economic pain of the pandemic will overstimulate the economy after the lockdown ends and cause inflation to spike. With the odds shifting to a slow recovery after the pandemic, this should mitigate any major hangover effects of the stimulus efforts. 

Finally, it’s important to note that, even if overall inflation trends lower, the price of some things might rise due to supply shortages.

Looking farther down the road, the price of some things might rise on a more permanent basis after the pandemic due to protectionism or a greater focus on local supply chains over international trade.

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A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends.

For additional information on COVID-19 and advice for the public, please visit Alberta Health Services. Please go to atb.com for COVID-19-related updates from ATB Financial.