Craig Wong, The Canadian Press Posted on Wednesday, June 22, 2022 8:43 AM EDT Last Updated on Wednesday, June 22, 2022 6:51 PM EDT
OTTAWA – Rising gas prices helped the annual inflation rate in May rise to its highest level in nearly 40 years as rising cost of living for Canadians compressed family budgets and reinforced expectations that the Bank of Canada will opt for a larger interest rate hike next month. .
Statistics Canada said on Wednesday that its consumer price index in May rose 7.7% compared to a year ago, the fastest pace since January 1983, when it rose 8.2%. This is an increase of almost one percentage point over the 6.8 percent gain in April.
TD Bank CEO Leslie Preston said a generation of Canadians is experiencing high inflation for the first time.
“If you’re not over 40, you’ve never experienced inflation like this, and unfortunately we don’t expect much rest in the future,” Preston wrote in a report.
The May reading came as energy prices rose 34.8 percent compared to a year ago and gasoline prices rose 48.0 percent compared to a year ago. Excluding gasoline, the annual inflation rate rose in May to 6.3%, compared with 5.8% in April.
The Bank of Canada has tripled its key interest rate target so far this year to bring it to 1.5 per cent in an effort to control inflation.
He also said he is willing to “act more forcefully” if necessary, prompting economists to speculate that it could raise rates by three-quarters of a percentage point next month, as could the US Federal Reserve’s move. last week.
Desjardins chief economist Jimmy Jean said more than three-quarters of the inflation components rose more than three per cent, the upper end of the Bank of Canada’s target.
“We have a record low unemployment rate, rising wages, so an economy that is really above its current capacity and that is really in the backyard of central bankers,” Jean said.
“You could argue that we can’t do anything with supply chains and the pandemic and you know all the supply shocks that have happened, but when it comes to domestic demand and there is too much demand for the level of supply that is there, that is really their responsibility. “
The average of the three basic measures of inflation that the Bank of Canada follows closely rose to 4.73% in May, compared with 4.43% in April.
Bank of Canada senior deputy governor Carolyn Rogers said Wednesday that inflation is hurting Canadians and making things unattainable.
“We know that inflation keeps Canadians awake at night, keeps us awake at night, and we won’t stay calm until we become the target again,” Rogers said at an event in Toronto.
“We’ve been clear all along, the economy is in excess of demand, inflation is too high, rates need to rise.”
In May, Statistics Canada said the price of food purchased in stores rose 9.7 percent from a year ago, as did the April increase, as the cost of almost everything there had in the grocery cart increased.
The cost of edible fats and oils increased by 30.0 percent compared to a year ago, their largest increase recorded, mainly driven by rising prices for cooking oils. Fresh vegetable prices rose 10.3%.
The cost of services in May also rose 5.2 per cent from a year ago, more than a 4.6 per cent increase in April as Canadians traveled and ate at restaurants more often.
Prices for passenger accommodation rose 40.2% from a year ago, while the price of food purchased at restaurants rose 6.8%.
Royal Bank deputy chief economist Nathan Janzen said that while much of the growth comes from higher energy and food prices, cost pressures are widening to a wider range of goods and services.
He said the risk when price pressures drag across a broader set of goods and services is that consumer and business price expectations are unfounded.
“When this happens, this is an environment where it is much more difficult for central banks to get inflation back under control,” he said.
– With Ian Bickis archives in Toronto.
This report from The Canadian Press was first published on June 22, 2022.