A motorist pumps gasoline at a Shell station in Markham, Ontario. in this archive photo. Statistics Canada says the annual inflation rate reached 7.7% in May, the highest in nearly four decades. Tijana Martin / The Globe and Mail
Canadian inflation accelerated to a four-decade high in May as calls on policymakers expanded to find new ways to curb uncontrolled price growth.
The Consumer Price Index (CPI) rose 7.7 percent in May from a year earlier, up from 6.8 percent in April, Statistics Canada said on Wednesday. It was the highest rate of inflation since 1983 and part of a wider price increase that has been implanted in advanced economies.
The recent rise in energy costs, fueled by the war between Russia and Ukraine, is having a tangible effect on the figures. Gasoline prices rose 12% in May alone and rose 48% year-over-year; the national average price of unleaded normal gas remains around $ 2 a liter.
Still, consumers are feeling the pressure on a number of fronts, from rising costs to the grocery aisle and furniture stores, to rising hotel rates and rising rents. At the same time, average wages are not keeping pace with inflation, marking an erosion of purchasing power.
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“Price pressures continued to be widespread, pinching the pockets of Canadians and, in some cases, affecting their ability to cope with day-to-day spending,” Statscan said in its report.
It is unlikely to be the peak of inflation, either. Canadians pay more for petrol in June, which puts more pressure on consumer price growth. Several financial analysts said on Wednesday that the inflation rate could reach, or even exceed, 8 percent in the near future.
The situation is further increasing the pressure on policy makers to keep inflation at bay.
So far, central banks have embarked on their fastest pace of interest rate hikes in decades. The Bank of Canada has raised its benchmark interest rate in three successive meetings, bringing it to 1.5% from a pandemic low of 0.25%. Last week, the U.S. Federal Reserve raised its key rate by three-quarters of a percentage point, raising the target range from 1.5% to 1.75%.
The Bank of Canada will make its next rate decision on July 13. Most Bay Street analysts expect the central bank to match the Fed with its own exorbitant 75 basis point rise.
“The Bank of Canada should control prices soon,” Royce Mendes, a macro strategist at Desjardins Securities, wrote in a note to clients. “Accelerating inflation is likely to force the Bank of Canada to raise rates by 75 more [basis points]a huge move that central banks should have made earlier this month. “
Global markets have recently collapsed as investors worsen with the state of the economy. Central banks are trying to control inflation through higher interest rates, but without sending the economy into a recession, a result that investors find increasingly unlikely.
Recently, there has been a growing call on governments to find new ways to alleviate the financial pressures on households. On Sunday, the Bank of Nova Scotia released a report calling on the federal Liberal Party to do more to cope with inflation, in large part through lower government spending. “It’s fair to say that Canada’s tax authorities are not doing anything important to curb inflation right now,” the report said.
Speaking at a Bay Street hearing last week, Deputy Prime Minister Chrystia Freeland noted $ 8.9 billion in previously announced measures that will help several Canadians with their living expenses, including a 10% increase in security. old age for people over 75 and increase funding for childcare. Mrs Freeland did not announce any new measures that day.
U.S. Treasury Secretary Janet Yellen, who met with Ms. Freeland in Toronto on Monday, said the White House was considering a number of policy options to deal with inflation, including a reduction in inflation. gasoline tax. Ms. Freeland did not rule out anything, but said a reduction in gas taxes would hamper efforts to reduce the deficit and noted the carbon tax cuts that households receive.
On both sides of the border, consumers are increasingly pessimistic about the economy. So far, their spending has held up well, helped by the hordes of cash that many households accumulated during the pandemic, when spending options were limited. But these savings are being eroded by high inflation, and declining confidence could translate into weaker spending.
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