Canada’s inflation rate rose at its fastest pace in almost 40 years in the year up to May, as the price of just about everything continues to go up fast.
Statistics Canada reported Wednesday that an uptick in the price of gasoline was a major factor causing the overall inflation rate to hit 7.7 per cent. Gas prices rose by 12 per cent in the month of May alone, and are up by 48 per cent compared to where they were a year ago.
Food prices were also a major factor to the upside, with grocery bills increasing by 9.7 per cent over the past year. Within the food category, the cost of edible fats and oils skyrocketed 30 per cent, the fastest increase on record.
Russia’s invasion of Ukraine is a major factor in that uptick, as Ukraine is one of the world’s leading suppliers of sunflower oil, and the war has caused shortages of the pantry staple.
WATCH | How the war in Ukraine is leading to a shortage of sunflower oil:
The cost of home furnishings are also rising at a record-setting clip, with furniture prices increasing by 15.8 per cent in the past year, amid higher shipping and input costs. A major factor in that increase was the start of tariffs of up to 300 per cent on some upholstered furniture from Vietnam and China last year, CBC News has reported.
Higher increase than expected
Economists has been expecting the rate to increase from a 30-year high of 6.8 per cent in April, but the numbers for May blew past those expectations. Prices increased by 1.4 per cent in the month of May alone. Seasonally adjusted, May saw the biggest one-month jump in the inflation rate since 1992.
“If you aren’t over 40, you have never lived through inflation like this, and unfortunately, we are not expecting much of a reprieve going forward,” TD Bank economist Leslie Preston said. “Inflation is expected to remain elevated through 2022.”
Canada is not the only country dealing with inflation at its highest level in decades. In the U.S., the inflation rate tops 8 per cent right now, and new data out of the U.K. shows the cost of living rising at a 9 per cent annual clip.
While Canada’s inflation rate is going up swiftly any way you slice it, Statistics Canada made some changes recently to how it tabulates the numbers, giving increased weight to things like shelter, and adding the cost of new and used vehicles to its official index for the first time.
By the data agency’s calculations, the cost of purchasing a passenger vehicle increased by 6.8 per cent in the past year. While that’s lower than the overall inflation rate, it was nonetheless one of the major factors contributing to the higher overall increase, Statscan said.
Bank of Canada now more likely to hike lending rates
The higher-than-expected inflation figure makes it all but certain that the Bank of Canada will raise its benchmark interest rate by three quarters of a percentage point at its next policy meeting in July, in an attempt to rein in runaway price increases.
The central bank slashed its lending rate to 0.25 per cent early in 2020 to stimulate the economy through the pandemic, but in recent months, it has moved aggressively to hike rates. Another 75-point hike would bring the bank’s key lending rate to 2.25 per cent, the highest its been since the financial crisis in 2008.
While higher borrowing costs are likely to bring down inflation over time, the impact is unlikely to be swift, economist Kiefer Van Mulligen with the Canadian Chamber of Commerce said, which is why consumers and policymakers should brace for high prices to stick around.
“Interest rates began to increase in March, but monetary policy does not work overnight,” he said. “[And] higher interest rates can’t do much to solve some of the more critical causes of current inflation, such as supply chain problems.”
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