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Inflation has ‘squeezed’ Canadian wallets dry

Published

2 years ago

January 10, 2023

It’s at the grocery store. It’s at the gas pumps. It’s at your favourite restaurant.

Nearly everywhere Canadians have gone in the past year, every bill might as well have had an extra charge tacked on to the bottom reading simply: inflation.

A shorthand for what’s essentially the rising cost of living, inflation swept across the globe in 2022 and Canada was not immune from its sting.

Canadians eager to travel in June after years of COVID-19 restrictions were met by a 49.7 per cent year-over-year hike in the cost of accommodations. The rest of that summer saw the average price for regular gasoline soar past $2 per litre in many parts of the country. And in October, Canadians were paying 44.8 per cent more for pasta from the grocery store than the same month a year earlier.

Poll after poll showed how stretched Canadian dollars had become amid 40-year highs in inflation, with many forced to make impossible decisions about how to feed their families, pay for medications and keep a roof over their heads.

More than a third (36 per cent) of Canadians say their financial situations are very bad or somewhat bad heading into 2023, according to Ipsos Public Affairs polling conducted exclusively for Global News between Dec. 14 and 16.

The Liberal government, as well as opposition MPs, have seized on these pain points for Canadians this year, levelling accusations for the pain at corporate greed, overzealous spending and Vladimir Putin for Russia’s unprovoked invasion of Ukraine and resultant global supply chain kinks.

Inflation, in many respects, became the word of the year in 2022 as economists, politicians and everyday Canadians struggled to come to grips with the surging costs of everything.

So, what happened? Global News spoke to economists about how inflation got so out of hand, and in the weeks to come, will be going across the country to hear from Canadians directly about how much consumers are out of pocket amid the rising cost of living.

Why is inflation so high?

The annual rate of inflation — how much more you were paying for goods this year compared with last — topped out at a 41-year high of 8.1 per cent in June 2022, according to Statistics Canada’s Consumer Price Index (CPI).

It’s cooled slightly since then but has remained elevated, clocking in at 6.8 per cent in November.

A little inflation is normal for the economy in most years, but 2022’s price pressures were well above the Bank of Canada’s mandated two per cent target for inflation.

The Bank of Canada, the independent lead of monetary policy in the country, aims to keep inflation within its target primarily by using interest rates, which it has raised at a historic pace in the past year to tamp down on price pressures.

Stephen Brown, senior Canada economist at Capital Economics, says central banks worldwide, including the Bank of Canada, “clearly” acted too late last year to start raising their interest rates to lessen spending demand in the economy by making borrowing more expensive.

“I think it’s very hard to understate how high inflation was this (past) year,” Brown says.

Looking back, Brown says the consensus of economists’ predictions for the average of inflation heading into 2022 was around 3.5 per cent for the year but it has ended up closer to seven per cent.

When economists set out their forecasts for inflation in 2022, no one could have foreseen impacts such as Russia’s invasion of Ukraine, which launched in February and disrupted critical supply chains for commodities such as oil and wheat throughout much of the past year.

Brown adds it’s also now evident that economists underestimated some inflation pressures such as the demand for services like travel and dining out when economies reopened from COVID-19 lockdowns. Ongoing effects from the pandemic, meanwhile, such as shortages of labour and of critical inputs such as semiconductors, continued driving up the costs of international goods like vehicles.

“When we look at what’s been driving inflation this year — energy, food, goods from abroad — it’s all been these external factors that, really, the Bank of Canada couldn’t do anything about,” he says.

“If it wanted to get inflation of two per cent this year, it would have had to raise interest rates by, say, five percentage points overnight, if not more, to just absolutely kill the domestic economy.”

The Conservative Party of Canada has accused the federal Liberals of driving inflation through overspending, while the NDP has charged the government with failing to do enough to support Canadians through the rising cost of living.

Chrystia Freeland, the deputy prime minister and minister of finance, has pushed back against criticisms that the Liberals overspent, saying in the fall economic update that the feds are keeping their “powder dry” while only rolling out targeted supports for Canadians hit hard by inflation.

For his part, Bank of Canada governor Tiff Macklem has admitted in retrospect that lifting the pandemic’s economic stimulus sooner could have limited inflation.

Where does inflation hurt the most?

StatCan’s CPI is a catch-all for a basket of goods representative of a typical Canadian household, but the cost of certain items in that basket has only continued to accelerate.

Grocery prices, for instance, were up 11.4 per cent in November, with many of the costs of consumer staples accelerating well past that mark.

November saw prices continue to climb year-over-year across many grocery store staples.

There have been many reasons for surging costs at the grocery store, according to a recent breakdown from StatCan.

The invasion of Ukraine has driven costs higher on inputs such as gas and fertilizer as well as on wheat and other grains, the report said, with the war centred in a part of Europe known colloquially as the world’s bread basket.

Elsewhere, the COVID-19 pandemic forced shutdowns of food processing facilities in 2022, and reduced output throughout the supply chain drove up prices on the limited food that was being produced, StatCan said.

All the while, grocery giants saw their profits surge, drawing accusations of “greedflation” from Canadian shoppers and the federal NDP, which called for a Competition Bureau investigation into prices.

Ipsos polling conducted for Global News throughout 2022 showed Canadians were increasingly anxious about putting food on the table amid the rising cost of living.

Almost half (47 per cent) of respondents to the December poll said they had cut spending in the past year, and more than a quarter (27 per cent) said they had reduced spending on staples like food and clothing to afford other essentials and make ends meet.

Can Canadians keep pace with inflation?

One of the reasons why Canadians are having to make hard choices about spending amid inflation is that their wages have not kept pace with the rising cost of living.

While StatCan data shows average hourly wages have grown at rates above five per cent annually over the past seven months, Canadians by and large have not seen their pay rise to match inflation.

The pace of wage growth failed to match annual inflation in 2022. December 2022 inflation figures are not yet available.

“It’s important to keep in mind that those are kind of real reductions in the purchasing power of workers,” says Iglika Ivanova, senior economist with the Canadian Centre for Policy Alternatives in B.C.

“Especially in this year, with these enormous increases in the cost of living and even higher increase in the cost of food and the cost of basics like rent or transportation, that people earning more modest incomes have really been squeezed, for lack of a better word.”

Beyond just the ability to afford necessities, inflation has made it especially harder for families to keep pace and give their kids a healthy life.

Ivanova and the CCPA track what wages residents in B.C. need to not just subsist, but to provide a basic standard of living for their family.

That calculation, called the living wage, outpaced inflation for residents of Metro Vancouver in 2022, surging 17.4 per cent annually to $24.08 per hour. A third of two-parent, two-child families in the city are making less than that hourly wage, according to the CCPA.

Ivanova explains that the surge in the living wage this past year is because inflation has hit particularly hard in areas critical to healthier living, such as fresh fruit and vegetables.

“The reality is that the healthy food (price) is just going up by more,” she says.

While the Bank of Canada has acted rapidly to raise interest rates to cool inflation — the benchmark rate rose four percentage points from March to December of last year, one of the fastest tightening cycles in its history — that hasn’t necessarily made life more affordable.

Mortgage costs for homeowners were up 14.5 per cent in November as interest rates bit, according to Statistics Canada.

Rent, meanwhile, surpassed an average $2,000 per month nationally in November. With StatCan’s rental index rising more than seven per cent in B.C. and Ontario last month, the agency pointed to higher interest rates creating a barrier for entry to the ownership market as putting more pressure on rents.

Ivanova says the pace at which rents are rising in Metro Vancouver can’t be adequately fixed merely by higher wages for renters.

“Rent is becoming a real crisis,” she says. “Without significant action on housing affordability, we’re never going to catch up. The cost of housing specifically will just overwhelm the family budgets of lower earners.”

When will inflation finally cool?

Barring unforeseen events like Russia’s invasion of Ukraine this past year, most economists, big banks in Canada and the central bank see inflation declining through 2023, with the Bank of Canada forecasting that inflation return to its two per cent target by the end of 2024.

The first interest rate increases of the current cycle began in March 2022, but economists say it typically takes between 12 and 18 months for the full impact of central bank rate hikes to make their way through economy.

Consumers themselves are skeptical high prices will be tamed this year, according to Ipsos polling from December, which showed 67 per cent are somewhat or very pessimistic that the Bank of Canada will hit its two per cent target for inflation.

Capital Economics has a rosier outlook for inflation, albeit due to a possible economic storm on the horizon. Brown’s forecast calls for inflation to drop back down to two per cent this year amid a “moderate recession” in Canada.

But he says Canadians should already be encouraged to see agriculture commodity prices, as well as oil and natural gas prices, dropping in recent months. Car prices should start to drop as well as supply shows signs of improvement, he adds.

The 2023 food price report from the Agri-Food Analytics Lab at Dalhousie University shows that food prices may moderate from their current acceleration, but are still expected to grow at a rate of five to seven per cent next year.

The “big uncertainty” lies in Canadians themselves, Brown argues, and their demand specifically for services.

While he doesn’t expect a repeat of the rush to travel that the reopened economy saw in 2022, he says if wage growth keeps its momentum and Canadians find extra dollars to spend on the kinds of experiences they missed during the pandemic, these forces could be a “concern” for the Bank of Canada, which could lead it to continue raising interest rates.

“I think there are reasons to be encouraged about the outlook, but it is still too soon to say we’re heading back to a low-inflation world,” Brown says.

Economist Armine Yalnizyan told Global News recently that while businesses are quick to pass higher costs on to consumers, it can take longer for prices to fall.

Even when commodity prices and other inputs decline, she says businesses won’t have to drop their own prices until consumers decide they’re unwilling to pay the going rate — breeding competition among those willing to fight for Canadians’ scarce dollars.

“Because of people having less money and looking for a deal and knowing that somebody is going to offer a price cut somewhere, that reintroduces competition,” she says.

“But I think we all know that prices don’t come down as fast as they go up.”

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As plant-based milk becomes more popular, brands look for new ways to compete

Published

2 hours ago

September 15, 2024

Anne Joseph

When it comes to plant-based alternatives, Canadians have never had so many options — and nowhere is that choice more abundantly clear than in the milk section of the dairy aisle.

To meet growing demand, companies are investing in new products and technology to keep up with consumer tastes and differentiate themselves from all the other players on the shelf.

“The product mix has just expanded so fast,” said Liza Amlani, co-founder of the Retail Strategy Group.

She said younger generations in particular are driving growth in the plant-based market as they are consuming less dairy and meat.

Commercial sales of dairy milk have been weakening for years, according to research firm Mintel, likely in part because of the rise of plant-based alternatives — even though many Canadians still drink dairy.

The No. 1 reason people opt for plant-based milk is because they see it as healthier than dairy, said Joel Gregoire, Mintel’s associate director for food and drink.

“Plant-based milk, the one thing about it — it’s not new. It’s been around for quite some time. It’s pretty established,” said Gregoire.

Because of that, it serves as an “entry point” for many consumers interested in plant-based alternatives to animal products, he said.

Plant-based milk consumption is expected to continue growing in the coming years, according to Mintel research, with more options available than ever and more consumers opting for a diet that includes both dairy and non-dairy milk.

A 2023 report by Ernst & Young for Protein Industries Canada projected that the plant-based dairy market will reach US$51.3 billion in 2035, at a compound annual growth rate of 9.5 per cent.

Because of this growth opportunity, even well-established dairy or plant-based companies are stepping up their game.

It’s been more than three decades since Saint-Hyacinthe, Que.-based Natura first launched a line of soy beverages. Over the years, the company has rolled out new products to meet rising demand, and earlier this year launched a line of oat beverages that it says are the only ones with a stamp of approval from Celiac Canada.

Competition is tough, said owner and founder Nick Feldman — especially from large American brands, which have the money to ensure their products hit shelves across the country.

Natura has kept growing, though, with a focus on using organic ingredients and localized production from raw materials.

“We’re maybe not appealing to the mass market, but we’re appealing to the natural consumer, to the organic consumer,” Feldman said.

Amlani said brands are increasingly advertising the simplicity of their ingredient lists. She’s also noticing more companies offering different kinds of products, such as coffee creamers.

Companies are also looking to stand out through eye-catching packaging and marketing, added Amlani, and by competing on price.

Besides all the companies competing for shelf space, there are many different kinds of plant-based milk consumers can choose from, such as almond, soy, oat, rice, hazelnut, macadamia, pea, coconut and hemp.

However, one alternative in particular has enjoyed a recent, rapid ascendance in popularity.

“I would say oat is the big up-and-coming product,” said Feldman.

Mintel’s report found the share of Canadians who say they buy oat milk has quadrupled between 2019 and 2023 (though almond is still the most popular).

“There seems to be a very nice marriage of coffee and oat milk,” said Feldman. “The flavour combination is excellent, better than any other non-dairy alternative.”

The beverage’s surge in popularity in cafés is a big part of why it’s ascending so quickly, said Gregoire — its texture and ability to froth makes it a good alternative for lattes and cappuccinos.

It’s also a good example of companies making a strong “use case” for yet another new entrant in a competitive market, he said.

Amid the long-standing brands and new entrants, there’s another — perhaps unexpected — group of players that has been increasingly investing in plant-based milk alternatives: dairy companies.

For example, Danone has owned the Silk and So Delicious brands since an acquisition in 2014, and long-standing U.S. dairy company HP Hood LLC launched Planet Oat in 2018.

Lactalis Canada also recently converted its facility in Sudbury, Ont., to manufacture its new plant-based Enjoy! brand, with beverages made from oats, almonds and hazelnuts.

“As an organization, we obviously follow consumer trends, and have seen the amount of interest in plant-based products, particularly fluid beverages,” said Mark Taylor, president and CEO of Lactalis Canada, whose parent company Lactalis is the largest dairy products company in the world.

The facility was a milk processing plant for six decades, until Lactalis Canada began renovating it in 2022. It now manufactures not only the new brand, but also the company’s existing Sensational Soy brand, and is the company’s first dedicated plant-based facility.

“We’re predominantly a dairy company, and we’ll always predominantly be a dairy company, but we see these products as complementary,” said Taylor.

It makes sense that major dairy companies want to get in on plant-based milk, said Gregoire. The dairy business is large — a “cash cow,” if you will — but not really growing, while plant-based products are seeing a boom.

“If I’m looking for avenues of growth, I don’t want to be left behind,” he said.

Gregoire said there’s a potential for consumers to get confused with so many options, which is why it’s so important for brands to find a way to differentiate themselves, whether it’s with taste, health, or how well the drink froths for a latte.

Competition in a more crowded market is challenging, but Taylor believes it results in better products for consumers.

“It keeps you sharp, and it forces you to be really good at what you’re doing. It drives innovation,” he said.

This report by The Canadian Press was first published Sept. 15, 2024.

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Inflation expected to ease to 2.1%, lowest level since March 2021: economists

Published

2 hours ago

September 15, 2024

Anne Joseph

Economists anticipate that Canada’s annual inflation rate in August fell to its lowest level since March 2021.

Ahead of Statistics Canada’s consumer price index set to be released on Tuesday, economists polled by Reuters are expecting the report to show prices rose 2.1 per cent from a year ago, down from a 2.5 per cent annual gain in July. The forecasters also anticipate inflation remained flat on a month-over-month basis.

“Unless there’s something lurking out there that we’re not aware of, it looks like we’re headed for a pretty favourable reading,” said BMO chief economist Douglas Porter.

RBC economists Nathan Janzen and Claire Fan said in a report last week that those expectations would put the headline inflation rate just a hair over the Bank of Canada’s two per cent inflation target.

“Most of that August slowing is expected from a pullback in gasoline prices, but the (Bank of Canada’s) preferred core CPI measures are also expected to trend lower, with the closely-watched three-month annualized growth rate easing from an average of 2.6 per cent in July,” the RBC economists said.

The continued progress on slowing inflation comes as the central bank has signalled a willingness to speed up cuts to its key lending rate if circumstances warrant.

The Bank of Canada reduced its key lending rate by a quarter-percentage point earlier this month — the third consecutive cut — to 4.25 per cent. Governor Tiff Macklem said the decision was motivated by falling inflation, noting if the CPI moving forward “was significantly weaker than we expected … it could be appropriate to take a bigger step, something bigger than 25 basis points.”

On the other hand, Macklem said if inflation is stronger than expected, the bank could slow the pace of rate cuts.

Inflation has remained below three per cent since January and fears of price growth reaccelerating have diminished as the economy has weakened.

Porter said despite progress on the inflation rate, it’s still “not in a place where it’s a compelling argument that the bank has to go even faster.”

He forecasts the central bank will cut its key lending rate by a quarter-percentage point at every meeting until July 2025, bringing it down to 2.5 per cent by that time. That prediction also comes after data released last week that showed Canada’s unemployment rate rose to 6.6 per cent in August from 6.4 per cent in July.

However, Porter said it’s possible the bank could speed up its rate cutting cycle if inflation continues easing.

“If we’re going to be wrong, it’s that we’re going to get to 2.5 per cent even more quickly and possibly lower than that,” said Porter.

“There is a case to be made that if the economy were to weaken further, there’s little reason for the bank to keep rates in what they consider to be the neutral zone. They could go below that.”

Shelter costs have remained the main driver of inflation as Canadians face high rents and mortgage payments. Porter noted that when factoring out housing costs, inflation in both Canada and U.S. is hovering slightly above one per cent.

“So really, the only thing keeping Canadian inflation above two per cent is shelter and it does look like shelter costs are probably going to fade,” he said.

“It looks as if rents are starting to moderate. They’re not necessarily falling, but not rising as quickly. And of course with interest rates coming down, ultimately the big kahuna here, mortgage interest costs, will recede as well.”

With the U.S. Federal Reserve set to meet on Wednesday, Janzen and Fan said they expect the American central bank to announce its first rate cut in four years.

“Gradual but persistent labour market softening and slowing inflation make it clear that current high interest rates are no longer needed,” they wrote.

“We think governor (Jerome) Powell’s comments will likely stay on the cautious side — hinting at future rate cuts without committing to a pre-determined path to allow for more flexibility in future decisions.”

—With files from Nojoud Al Mallees in Ottawa

This report by The Canadian Press was first published Sept. 15, 2024.

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Air Canada, pilots reach tentative deal, averting work stoppage

Published

2 hours ago

September 15, 2024

Anne Joseph

MONTREAL – Passengers with plans to fly on Canada’s largest airline can breathe a sigh of relief after Air Canada said Sunday it has reached a tentative agreement with the union representing more than 5,200 of its pilots.

The news of a preliminary deal with the Air Line Pilots Association came shortly after midnight on Sunday when the airline issued a press release just days ahead of a potential work stoppage for Air Canada and Air Canada Rouge.

The tentative deal averts a strike or lockout that could have begun on Wednesday, with flight cancellations expected before then.

“The new agreement recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline,” the carrier said in the statement.

It said Air Canada and Air Canada Rouge will continue to operate as normal while union members vote on the tentative four-year contract.

It said the terms of the new deal will remain confidential pending a ratification vote by the membership, expected to be completed over the next month, and approval by Air Canada’s board of directors.

ALPA issued a statement after midnight Sunday, saying if ratified, the tentative agreement will generate an approximate additional $1.9 billion of value for Air Canada pilots over the course of the agreement.

First Officer Charlene Hudy, chair of the Air Canada ALPA MEC, says in a Sunday statement, “The consistent engagement and unified determination of our pilots have been the catalyst for achieving this contract.” She added that progress was made on several key issues including compensation, retirement, and work rules.

The airline said customers who changed flights originally scheduled from between Sunday and Sept. 23 under its labour disruption plan can change their booking back to their original flight in the same cabin at no cost, providing there is space available.

In the lead-up to Sunday’s deadline to issue notice of a stoppage, the two sides said they remained far apart on the issue of pay, which was central in the negotiations that had stretched for more than a year.

The pilots’ union argued Air Canada continues to post record profits while expecting pilots to accept below-market compensation. It had also said about a quarter of pilots report taking on second jobs, with about 80 per cent of those doing so out of necessity.

The airline had said it has offered salary increases of more than 30 per cent over four years, plus improvements to benefits, and said the union was being inflexible with “unreasonable wage demands.”

Air Canada and numerous business groups had called on the government to intervene in the matter, including the Canadian Federation of Independent Business and the Canadian and U.S. Chambers of Commerce.

“The Government of Canada must take swift action to avoid another labour disruption that negatively impacts cross-border travel and trade, a damaging outcome for both people and businesses,” said the chambers and the Business Council of Canada in a statement Friday.

The union had called for the opposite approach, with Association President Capt. Tim Perry issuing a Friday statement asking Ottawa to respect workers’ collective rights and refrain from getting involved in the bargaining process. He said the government intervention violates the constitutional rights and freedoms of Canadians.

For his part, Prime Minister Justin Trudeau had said it’s up to the two sides to hash out a deal.

Trudeau said Friday the government isn’t just going to step in and fix the issue, something it did promptly after both of Canada’s major railways saw lockouts in August and during a strike by WestJet mechanics on the Canada Day long weekend.

He said the government respects the right to strike and would only intervene if it became clear no negotiated agreement was possible.

Air Canada had already begun preparing for a possible shutdown, saying its cargo service had stopped accepting items such as perishables and indicating a wind-down plan for passenger flights would take effect if a notice of a strike or lockout was issued.

The tentative deal averts travel disruptions for the 670 daily flights on average operated by Air Canada and Air Canada Rouge, and the travel of more than 110,000 passengers.

This report from The Canadian Press was first published Sept. 15, 2024.

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