Inflation in Canada: The rate rose to 7.7 percent, the highest level in 40 years

Craig Wong, The Canadian Press

Date: June 22, 2022 8:43AM EST

Last update Wednesday, June 22, 2022 6:51 PM EST

OTTAWA – Annual gas price hike helped inflation The interest rate rose in May to its highest level in nearly 40 years, as the rising cost of living for Canadians squeezed household budgets and supported expectations that the Bank of Canada would choose to raise interest rates significantly next month.

Statistics Canada said on Wednesday its consumer price index in May rose 7.7 percent from a year ago, the fastest pace since January 1983 when it rose 8.2 percent. That’s about a percentage point higher than April’s 6.8 percent gain.

Leslie Preston, managing director of TD Bank, said a generation of Canadians is on the rise inflation for the first time.

“If you are not over 40, you have never lived inflation Like this, unfortunately, we don’t expect much delay going forward,” Preston wrote in a report.

The May reading came with energy prices up 34.8 percent from a year ago with gasoline prices up 48.0 percent from a year ago. Excluding annual gasoline inflation The rate rose in May to 6.3 percent, compared to 5.8 percent in April.

The Bank of Canada has raised its main interest rate target three times so far this year to 1.5 per cent in a bid to control inflation.

It also said it was prepared to “act more aggressively” if necessary, leading to speculation by economists that it could raise interest rates by three-quarters of a percentage point next month, in line with the US Federal Reserve’s move last week.

More than three-quarters of the inflation components are up more than three percent, the higher end of the Bank of Canada’s target range, said Desjardins chief economist Jamie Jane.

“We have a record low unemployment rate, and rising wages, so an economy that is already well above its current capacity and that is really in the backyard of central banks,” Gan said.

“You could argue that there’s nothing we can do about supply chains and the pandemic and you know all the supply shocks that have happened, but when it comes to domestic demand and there’s so much demand at the level of supply that exists, that’s really their responsibility.”

The average of the three core measures of inflation that the Bank of Canada closely monitors rose to 4.73 percent in May from 4.43 percent in April.

Bank of Canada Deputy Governor Caroline Rogers said on Wednesday that inflation is hurting Canadians and making things unsustainable.

“We know that inflation keeps Canadians up at night, keeps us up at night, and we won’t rest easy until we’re back on target,” Rogers said at an event in Toronto.

“We’ve been clear all along, excess demand in the economy, inflation is too high, rates need to go up.”

In May, Statistics Canada said the price of store-bought food rose 9.7 percent from a year ago, matching the increase in April, when the cost of just about everything in the grocery cart rose.

The cost of edible fats and oils rose 30.0 percent from last year, the largest increase ever, driven primarily by rising cooking oil prices. Fresh vegetable prices rose by 10.3%.

The cost of services in May was also up 5.2 percent from a year ago, up from 4.6 percent in April, as Canadians traveled and ate in restaurants more often.

Traveler accommodation prices increased by 40.2 percent compared to last year, while the price of food purchased from restaurants increased by 6.8 percent.

While much of the growth is coming from higher energy and food prices, cost pressures are spreading across a broader range of goods and services, said Nathan Janzen, assistant chief economist at Royal Bank.

He said that the danger when price pressures creep across a wider range of goods and services is that consumer and business price expectations become unconstrained,

“When that happens, it is an environment in which it is difficult for central banks to bring back inflation control,” he said.

– With files from Ian Becks in Toronto.

This report was first published by The Canadian Press on June 22, 2022.

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